Tax Write-off

[ZhenyaVC]

Hello!

My husband works in a Partnership, he gets Schedule K-1 every year to file with his taxes. This year he bought a new (not brand new, but new for him) truck to get to work and back. It is NOT an EV. I know that he can write off the mileage and repairs on it since it's used solely for work purposes, but can he write off the cost of the truck and/or interest paid on it?

Thanks in advance for your help!

Zhenya VC

[NateTheGrEAt · Accepted solution]

Great question! 

What you are referring to is called Unreimbursed Partnership Expenses. A partner in a partnership who has to pay expenses for the partnership's business and is not reimbursed for those expenses may be able to deduct those expenses on their personal tax return on Schedule E. This link describes how to enter these expenses in TurboTax:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/partnership/deduct-unreimbursed-partners...

Vehicle expenses as you described can be an example of Unreimbursed Partnership Expenses. Please note, if your husband uses a standard mileage deduction, this is practically all-encompassing of other vehicle expenses such as repairs, gas, tires, oil changes, etc. He does not get to deduct standard mileage plus those other items. The only items which could be separately deducted, in addition to standard mileage, would be parking and tolls. 

If your husband wanted to use "actual expenses" instead of mileage, he would need to track all expenses for the vehicle such as gas, repairs, oil changes, etc. and in this case he could take a depreciation deduction to recover the cost of the vehicle. 

The IRS requires you to use either the standard mileage or actual expense method, for vehicle expenses in a particular year. You cannot combine them both for the same tax year. If you use the standard mileage method in the first year you place the car in service for business, then you can choose in each later year to either continue using standard mileage or switch to actual expenses for that year. If you use actual expenses in the first year, you must use actual expenses for that vehicle the entire time you own it. 

Here is a good IRS link about vehicle expenses. 

I hope this was helpful!

[Laura_CPA · Accepted solution]

Hi ZhenyaVC, 

Happy to assist you! There are a few questions I have before I am able to answer your question. Did your husband purchased the truck under the Partnership's name or his personal name? If he bought it under the Partnership's name, that truck should have been expensed in the Partnership tax return (Form 1065) and the expense should have come through the K-1 he received. 

The second question is what does his partnership agreement for unreimbursed partnership expenses state? According to the IRS, you can deduct unreimbursed ordinary and necessary partnership expenses, your husband paid on behalf of the partnership on Schedule E (if he was required to pay theses expenses under the partnership agreement). Please check out this link for further details: https://www.irs.gov/instructions/i1040se

Overall, if his partnership agreement states he can deduct this truck, then he would deduct the greater of the two methods: actual expenses or mileage on Schedule E (and if the Partnership is considered nonpassive, if he materially participates, if he it is passive, then you cannot deduct the truck) 

I hope this helps understand, please let us know if you have any questions regarding the above. 

Cheers,

Laura 

[ZhenyaVC]

Thanks, Nate, for a very detailed answer! But, I still need to know if he can deduct the cost of the vehicle itself and/or interest on the loan. By the way he bought this vehicle in his own name, not the name of the Partnership.

Zhenya VC

[Laura_CPA · Accepted solution]

Hi Zhenya VC, 

The answer is you may depending on if you use the greater of the actual expense method or mileage and meet all the other criteria mentioned above. If you use the actual expense, you are able to depreciate the cost of the vehicle over the life of the asset or by using section 179 to expense it 100% if used 100% for the Partnership. The interest would be deducted, any repairs, maintenance, dmv fees, parking tolls. 

[ZhenyaVC]

Thank you, Laura! You were very helpful to me!

Sincerely, Zhenya VC