Bonus depreciation on Vehicle

[jrschatz]

Hello -

I file a schedule E for my rentals as a real estate professional who materially participates (I do not have another job, this accounts for 100% of my time).  

I am purchasing a truck this month that I intend to use more than 50% for business rental activities -- I track all of my miles and based on previous years I expect in 2021 to probably be 60% business/40% personal.  My question is for this year 2020; If I elect to take the bonus depreciation in this year for the full purchase price, could I base the business use strictly on the miles for the rest of the current year? Reason I ask is my personal miles are mainly accumulated in the summer so it would be likely that my miles from Oct-Dec would be 90% business/10% personal.  Assuming I keep the truck above 50% business use for its life, could I take 90% of the purchase price this year? (it is above 6000lbs gvw and the cargo bed is 8')

[AmeliesUncle · Accepted solution]

Yes.

But just be aware of two things: (1) if your business percentage does fall to 50% or less, there will be recapture of the depreciation and (2) taking that 90% Bonus Depreciation lowers the Basis of vehicle by 90%, which means (a) future depreciation will be non-existent and (b) whenever the vehicle is sold, you will likely have a taxable gain.

[jrschatz]

Thank you - that all makes sense. 

I have 5 properties - when I purchase tools/equipment that I use at all of them equally I typically divide the expense by 5 and list it separately on each property.  Is it best to do the same with this vehicle on my Schedule E deductions? For example, if the vehicle was 50k then 90% of that is 45k, and list the bonus depreciation of 9k (45k divided by 5) on each property?

[AmeliesUncle · Accepted solution]

Hypothetically yes, BUT:

(1)  As a Real Estate Professional the final result won't really matter (it can matter if you are not a Real Estate Professional due to Passive Loss rules).

(2) If you do that, then the program will think the vehicle is less than 50%, which may cause problems (I would need to review the rules, but I think the requirement for over 50% business usage to get accelerated depreciation also applies to vehicles over 6000 pounds).  I suppose you could enter it all under one property, then make adjustments elsewhere to spread out the deduction among the 5 properties.

[Carl]

@AmeliesUncle 

I do not have another job, this accounts for 100% of my time

Is there "any" way this could legally qualify as a SCH C business Since this is their primary (albeit, "only") source of income? Would make things a lot better I would think. Yes, they'd pay SE taxes. But then they'd be contributing to their own future SS income and would also allow them to make IRA contributions. Maybe putting the 5 rentals in an S-Corp if no problem for any mortgage holders? Just thinking out loud.

[Anonymous_ · Accepted solution]

Income from the rental of real estate is not reported on Schedule C unless significant services are provided to the renter or the taxpayer is a real estate dealer.

See https://www.irs.gov/instructions/i1040se#idm140609575953904

Regardless, income from real estate rental is not considered income from self-employment unless the taxpayer is a real estate dealer per Treas. Reg. §1.1402(a)-4.