@jyeh74 wrote:
So what is this $25,000 first year deduction that you can take when you buy a heavy SUV over 6000 GVWR entail? Can business owners only write this $25,000 off if the car was purchased under the business or can business owners also write it off if the car is purchased personally under their name (not business name) Or does it not really matter?
I think you probably need a professional consultation.
Let's take a step or two backwards.
If you buy assets for business use, you depreciate them (deduct their cost over their useful life). Section 179 says that, within certain limits, you can deduct the entire cost in the first year you place the asset in service. One of those limits is certain passenger vehicles over 6000 pounds. In that case, you can expense $25,000 of the cost in the first year, and then you can deduct the rest of the cost as normal depreciation spread out over the expected life of the vehicle, which I think is 5 years for cars.
(Section 179 also says that if you sell the vehicle or stop using it in business before the depreciation period is up, you have to recapture or pay tax, on the depreciation that you are no longer entitled to because you took the asset out of service. Section 179 is not a free ride, so be careful you understand all the ups and downs.)
There is also something called "bonus depreciation" which I honestly know nothing about. Talking section 179 or bonus depreciation allows you to deduct all or most of the cost all at once instead of spread out, and lowers your taxable income. But sometimes this is not the best way to run your business. For example, if you take such a large deduction that you have a tax loss for the year, you might not be able to get a loan to expand your business. Sometimes it might be beneficial to use normal depreciation so you have higher income and that will help your business in other ways besides higher taxes. Whether you should take standard depreciation, bonus depreciation, or section 179 depreciation on the purchase of an asset is complicated and there is not always one best answer.
If you buy an asset that is partly for business use, you only depreciate that portion. For example, if you buy a computer that is used 50% for business and 50% for personal use, and you can prove this with some kind of reasonable record, you can depreciate 50% of the cost as a business expense.
So let's get back to your vehicle.
If the business buys the vehicle, the business can depreciate the vehicle via normal depreciation, section 179 depreciation, or bonus depreciation, depending on other facts and circumstances. In the case of certain passenger vehicles over 6000 pounds, you can only claim $25,900 towards section 179 and the remaining cost must be depreciated over 5 years.
If the vehicle is owned by the business but only used 90% for business and 10% for personal use of the LLC members, you can only take 90% of the cost as depreciation (any of the 3 methods).
If the vehicle is owned by the member and used in business, the member does not take section 179, that's for the business only. (You did not clarify at the beginning that you were a multi-member LLC.). The member can get reimbursed for their expenses using one of the methods in publication 463 chapter 4. Those expense methods both take depreciation into account, but there is no method for accelerated depreciation.
If you want to take section 179 on this vehicle, it has to be purchased by the multi-member LLC and really used 100% for business. Don't get caught by the IRS driving it around for personal use on the weekends.
