End of Year Vehicle Purchase; over 6000 lbs

[Dom73]

I have 2020 TT but it isn't complete yet so I can't do the trial and error like I thought.  So my question:

Is there any appreciable benefit in deductions to buying a Truck over 6000 pounds and put in service the last week of December.   Does the special allowance apply?  And if so is that allowance (and any depreciation) reduced for the short period of time within the year of usage? 

Business use 95 to 100%

Self Employed/Sole proprietor

[M-MTax]

You can take the special allowance or Sec 179 if you have enough income for Sec 179....either way there's no reduction.

[DanielV01]

One of the great advantages to claiming either Section 179 or Special Depreciation on a vehicle is that it is not capped by when in the year you purchase the vehicle.  There are other factors that can limit the amount of deduction you can take, but time of the year is not one of them.  For example, Section 179 is capped at the amount of self-employment income you earned for the year; claiming Section 179 cannot produce a loss.  To see more on the requirements for claiming either, please click to see the following IRS website:  New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act

One thing to keep in mind, however, is that if you do claim either Special Depreciation, regular depreciation (also an option), or Section 179, you will be forced to use Actual Expenses to track and claim business use expense of this vehicle going forward.  You will not be allowed to use the Standard Mileage Rate.  The only way to use the Standard Mileage Rate is to begin doing so on the date you put the vehicle in service.  

In a nutshell, using the Special Depreciation or Section 179 deduction (and bear in mind state tax laws while making your choice; many states do not allow Special Depreciation and may have a lower cap on Section 179 deduction as well) can be more advantageous in the short term in your situation.  However, your long-term situation may not be as advantageous, so keep those factors in mind while making your choice.

[WMann]

DanielVo1, thank you for the information.  I cannot find where to enter the vehicle in TT??  The only area for vehicles only lets you do mileage or actual vehicle expense, no option for purchase.  Under depreciable expenses, it specifically says, other than vehicles, so I am confused on where to enter the purchase.

[AmeliesUncle]

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@WMann wrote:

 The only area for vehicles only lets you do mileage or actual vehicle expense, no option for purchase.  

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The purchase is part of the Actual Expenses.  It should ask you for that information in that section.

[DaveF1006]

Please review this IRS link for further details. If you claim actual expenses, the program will ask you about the purchase of the car and determine the depreciation expense for this year. Keep in mind though, if you choose to claim actual expenses this year, you will need to claim it in subsequent years. However if you used mileage in your first year in your business, you do have the option to use actual expenses in your second year of business. This is mentioned in the following IRS link. it states, " To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses. For a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate."

If you in your first year of business, you can choose to let Turbo Tax recommend the best option for you. You will enter mileage and actual expense information and Turbo Tax will make the determination on which option is best for you. 

[Edited 01-24-2021 02:08PST]

[AmeliesUncle]

It's been a while since I checked it, but if I remember correctly, it doesn't really choose the best option for you.  It just chooses the best option for the CURRENT YEAR (which is almost always Actual Expenses).  But if I remember correctly, it does NOT even consider your future plans so that 'choose the best option' is rather deceiving.

[DaveF1006]

It depends. I worked out a scenario in my Turbo Tax software and it did give me the option to enter both types of expenses and Turbo Tax gave its recommendation at the end of the entry. You are correct though in stating that Turbo Tax does not address future considerations in making the election to take actual expenses or mileage.