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Old 04-19-2015, 11:19 AM
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Join Date: Apr 2015
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Depreciation and Recapture : SUV Loophole : Section 179

Hello.

I have an S Corporation of which I am the only member and since I work all the time, I want to buy an SUV and take advantage of the depreciation offered by the SUV Loophole. I actually need an accountant now, because this particular part of the code just totally CONFUSES ME!!!! I'm just not sure what I'm getting into here. It sounds good, but is it really.

If I buy the SUV in September of 2015 for $60,000, I've calculated my first year depreciation as follows (I made a spreadsheet to do it):
Sec 179 DED $25,000.00
Bonus DEP $17,500.00
Reg Dep $3,500.00
Total DED $46,000.00
Adjusted Basis $14,000.00


Are my calculations correct?


Last edited by [email protected] : 04-19-2015 at 11:53 AM. Reason: I ask too much at one time and from looking at the other threads, it gets confusing.


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Old 04-19-2015, 09:49 PM
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$25k(sec 179)+$7K(accelerTED MACRES OVER 5 YEARS)=$32k a per vehicle limit per year; Section 179 limit has been reduced to $25K and no bonus depreciation is available for the 2015 tax year. YOUR SUV gross vehicle weight rating NEEEDS TO BE above 6k lbs but no more than 14,001 lbs .TO qualify for expensing up to $25k.if less than 6k lbs, then, you are subject to luxury vehicle rule and both the Section 179 expense deduction as well as Bonus Depreciation is limited to $11,160 for trucks and vans. On the disposition of the SUV, you need to recapture the sec 1245 unrecaptured depreciation as your ordinary income taxed at 25% aslongas your marginal tax rate is 25 % or higher but 10% or 15% if your tax bracket is 10% or 15%.Only gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable, including sec 179 depreciation. If you sell it at a loss, then, you do not need to recapture the sec 1245 depreciation. Also,As long as you trade the vehicle in for one with a value of equal or higher amount, there will be no taxable recapture. If you trade in your old SUV for a new SUV, you have a tax free like kind exchange. Section 179 deduction $25k pass thruyou, a shareholder/an EE on yor Sch K1 of 1120S.



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Old 04-19-2015, 10:31 PM
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Join Date: Apr 2015
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So my S Corp will deduct 32K in 2015 if I purchase a qualifying SUV and use it 100% for business.

Now, let's say I
1. financed the 60K to pay for the SUV
2. only have 32K remaining in the S Corporation.

What do I do with that money?

Before I purchased the SUV, I would have paid it to me as salary and paid FICA, State and Federal taxes on it personally and the corporate share of the FICA.

With this deduction I am now confused? I'm accustomed on being reimbursed for mileage. This isn't a reimbursement. This is my S Corporation purchasing a vehicle.

Do I still pay that money to me as salary?
Does it (dare I think it) now come to me personally free of any tax liability because of the deduction?



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Old 04-20-2015, 02:44 AM
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So my S Corp will deduct 32K in 2015 if I purchase a qualifying SUV and use it 100% for business.===>>not your s corp as said; your S corp cannot claim sec 179 expenses at corporate level; the S corp taxable income limit for Section 179 purposes is the net bottom line with several adjustments. One of those adjustments is adding back the W-2 wage paid to you as a shareholder employee. The Section 179 deduction is one of the separately stated items on sch k of 1120s required to be passed through to you via your K-1. The actual amount of Section 179 deduction you will be able to deduct on your 1040. But, A C corp is able to deduct its own 179 expenses in addition to what is claimed on the 1040s of the owners.Depreciation expenses for the vehicle may only be deducted by the S-corp if the S-corp owns the title for the automobile used. You may not deduct depreciation for the vehicle, nor may you deduct fuel, insurance, lease payments or repairs to the vehicle on your personal income tax return, regardless of the percentage the car is used for business purposes as you do not own it.
Now, let's say I
1. financed the 60K to pay for the SUV
2. only have 32K remaining in the S Corporation. ========>>financing has no effect on your S corp you may deduct biz use auto loan interest exp on 1120S(if the S corp owns it) or your own 1040 (if you own it) on Form 2106, which flows to the Miscellaneous Deductions section of their Sch A.


Before I purchased the SUV, I would have paid it to me as salary and paid FICA, State and Federal taxes on it personally and the corporate share of the FICA. ======>Naturally. As an S corp owner/an EE, you need to pay reasonable salary to yourself; your salary on W2 is subject to employment taxation, fica tax to the IRS.

With this deduction I am now confused? I'm accustomed on being reimbursed for mileage. This isn't a reimbursement. This is my S Corporation purchasing a vehicle. ========>> you use your personal car to conduct business for the corporation. Say you drive a total of 30k miles a year. The car is registered in your own name, not the S corp’s name, but you have the S corp pay the gas, insurance premium, monthly payments and other expenses related to the car. S corp is a separate legal entity from you.What this means is that the corp may not pay your personal expenses and you personally may not pay the corp’s expenses. To this extent, the payments made by the corp for your personally owned car should be classified a loan to you. So, Generally, you need to personally pay all vehicle expenses on your personally titled car. Then, you need to have the S corp reimburse you using either the mileage rate or actual expenses including depreciation and section 179 expensing; car expenses are deductible by you when the vehicle is titled in the S-corp’s name. However, if the vehicle is titled in the name of the shareholder, the S-corp reimburses the shareholder for a portion of his business-related automobile expenses. The S-corp takes an expense deduction for the reimbursement. Prior to allocating any expenses or reimbursements, the S-corp and you must verify the party that holds the vehicle title.


Do I still pay that money to me as salary? =========>>>>it depends;as aid, you as a shareholder /employee who uses your personal vehicle for business can submit a request for reimbursement to the corp, based on documented business miles. The corp reimburses you based on either the standard mileage rate/ acual expense for business.under accountable plan, the reimbursement is not reportable as taxable income to you. However, if the corp uses non accountable plan, then,the corporation's reimbursement should be treated as a compensation expense on your W2 an you can deduct it on your Sch A by itemizing yoru dedcutions.



The best way to handle this (by that I mean the method that will produce the most tax benefits) is for you to submit an expense report to the company and have the company reimburse you. This would then be a tax-free reimbursement to you, and become a deductible expense to the company.

If your partner leases his car to the S Corp without regard to actual business use, (meaning the S Corp pays your partner a set figure every month for the auto) , the expense of the lease is deductible to the S Corp, but taxable to your partner in the form of compensation.

Does it (dare I think it) now come to me personally free of any tax liability because of the deduction?=======>>it depends; say you/the S corp own(s) the car that you use for biz purposes, if the corp reimburses auto related expenses under nonaccountable plan, you need to report the amount as wage on return and can claim it on Sch A of 1040 by itemizing deductions. However, under accountable plan, no you do not need to report the reimbursement as income on your return so not reported on your W2.
Note; If the S corp owns the car, it can fully deduct car expenses, subject to dollar limits on depreciation, against its business income. If you, as an shareholder/ an EE , own the car and use it for business, your expenses are deductible as a miscellaneous itemized deduction to the extent they exceed 2% of your AGI. And even this deduction may be further limited by the overall reduction in itemized deductions.aslongas you have the use of the company car, You can deduct any of your actual out-of-pocket unreimbursed car-related costs,i.e., gas or oil etc for the company car; you cannot use the standard mileage rate to account for these costs but you can only deduct your actual costs. If the S corp reimburses you for biz use of your/ S corp’s own car, the reimbursement arrangement may be made on a tax-free basis by using an accountable plan. Then, you need not report any of reimbursements for car costs. But you cannot deduct any car costs as an employee business expense ; the corporation deducts its outlays to you.Under the non-accountable plan, then all reimbursements are reported as compensation to you on your W2. Then, on your personal return you can deduct your car expenses as a miscellaneous itemized deduction subject to the 2% of your AGI floor ONLY when you itemize deductions on your return.



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