Section 179 Bonus Depreciation - Help

[Berob]

My father is considering the purchase of a full size SUV and recently became
aware of the new Section 179 Bonus Depreciation "rules". I must confess
that he and I know very little about it (hence my post here), but it
certainly sounds intriguing. My father owns 8 rental properties and the
vehicle would be used both personally and in the course of maintaining the
rental properties. My main questions are: 1) does it sound like this
qualifies for this type of depreciation and if so, how much? 2) if he
purchases before December 31st, can he claim the full depreciation benefit?
3) what impact would it have if he sells all of his rental properties next
year?

I realize that this is probably a complicated topic, but I thought someone
might could hit the high points so I can tell if this is worth pursuing.
Thanks, and Happy New Year.

 

[Wayne Brasch]

My father is considering the purchase of a full size SUV and recently became
aware of the new Section 179 Bonus Depreciation "rules". I must confess
that he and I know very little about it (hence my post here), but it
certainly sounds intriguing. My father owns 8 rental properties and the
vehicle would be used both personally and in the course of maintaining the
rental properties. My main questions are: 1) does it sound like this
qualifies for this type of depreciation and if so, how much? 2) if he
purchases before December 31st, can he claim the full depreciation benefit?
3) what impact would it have if he sells all of his rental properties next
year?

I realize that this is probably a complicated topic, but I thought someone
might could hit the high points so I can tell if this is worth pursuing.
Thanks, and Happy New Year.

The tax benefits of this proposition depends upon how much your Father would
use this vehicle for personal purposes as opposed to dealing with the rental
properties.

Wayne Brasch, CPA, M. S. Taxation

 

[Arthur Kamlet]

The tax benefits of this proposition depends upon how much your Father would
use this vehicle for personal purposes as opposed to dealing with the rental
properties.

First, I have not researched whether an SUV used in conjunction
with a rental property is eligible for S 179 (S 179 does not apply
to rental real estate, but an SUV is not part of the rental
property). The following remarks assume S 179 is allowed.

Just to expand this: Section 179 allows you to expense up to
$100,000 in the first year so you get more expense this year and
less in future years. It will all balance out by the end of the
6th year if you don't mess things up.

If this is for rental, then his ability to take rental loss is
limited by filing stt=atus and adjusted gross income. It is quite
possible he will be limited by the amount of rental loss he can
use this year, and trying to claim more expense for his SUV will
yield no tax benefit for him.

He will, of course, keep a daiy mileage log for his part-personal,
part-business vehicle, whether he takes Section 179 or not. Only
the portion used for business can be first year expensed and
dep[reciated.

He will also be allowed a partial Special Depreciation amount
of up to 50% of the business portion of the SUV, even if he does
not choose first year expensing.

If his business use in the first 6 years ever drops below 50%, or
he gives up the rental business, he must recapture (add back to
income) the excess of Sec 179 over allowed depreciation. A
tricky caclulation.

And some states, including my home state of Ohio, does not allow
the new S 179 depreciation expense on the state tax return, so if
he lives in one of those states (I don't have a list, sorry) he
would have to recapture for one or more years, the
state-disallowed depreciation expense. (Ohio doesn't allow 5/6 of
the special 30/50-% depreciation either, but allows spreading it
out over 6 years -- another royal pain.)

All things considered, he gets bragging rights at the golf club
for taking Sec 179 for his SUV. But he may be paying his tax
preparer more than he will earn on that money over 6 years.

 

[Paul]

My father is considering the purchase of a full size SUV and recently became
aware of the new Section 179 Bonus Depreciation "rules".

They aren't "new", as they have been on the books for a multitude of years.

I must confess that he and I know very little about it (hence my post here), but it
certainly sounds intriguing. My father owns 8 rental properties and the
vehicle would be used both personally and in the course of maintaining the
rental properties. My main questions are: 1) does it sound like this
qualifies for this type of depreciation and if so, how much?

To claim Section 179 on ~any~ asset it must be used "more then" 50% of the
time for business use. In the case of a vehicle, more than 50% of the
mileage must be business use, AND it muist remain that way for a number of
years. In this case, until the regular depreciation would have "caught up"
to the accelerated section 179 depreciation taken. If the business use
falls below 50% in any year, there will be some amount of the Sect. 179 that
must be recaptured.

2) if he purchases before December 31st, can he claim the full

depreciation benefit?

If the vehicle meets the Sect 179 tests, and he can otherwise claim Section
179, yes.

3) what impact would it have if he sells all of his rental properties next
year?

Recapture of the Sect 179 depreciation (so adding it to income).

I realize that this is probably a complicated topic, but I thought someone
might could hit the high points so I can tell if this is worth pursuing.
Thanks, and Happy New Year.

If he plans on disposing the rental property, and not having any business
activities after that, then I'd advise "NO" Section 179.

In short, what Section 179 is, is an advanced deduction, taken this year,
instead of over a number of years. If those future years aren't business,
then the advanced deduction shouldn't have been taken, and it would get
included in income.