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Tax Tip vs. Practicality

By
Services for Real Estate Pros with William T. Zumwalt CPA, CTC "The Tax Coach for REALTORS"

One of the biggest tax deductions you have left before the end of the year is the purchase of a new or used vehicle. This is especially true if you are looking at the big SUV’s and pickup trucks. This year may be the last year that the 50% bonus depreciation is available for buying a new car or truck.

Here’s a quick example: Gary is looking for a tax break for 2013 and has heard about the great depreciation available for the purchase of a new SUV. He is looking at a New Escalade with a purchase price of $65,000.  As of this year Gary can deduct an immediate $25,000 for what is called Section 179 depreciation.  So the purchase price less the $25,000 leaves a remaining balance of $40,000 ($65,000 - $25,000). Now Gary can elect to take a Bonus depreciation of %50 of the remaining balance of the Escalade or $20,000 for a total of $45,000 to be deducted from his business income. Gary just took care of his tax problem in 2013. But wait!

There is some bad news to counteract Gary’s good fortune. For one thing Gary will have to use the actual expenses for the life of the new car. He will also have to keep a log 24/7. Oh and while he has forgotten about his income in the 2008 year which was just horrible how will his income fluctuate over the next 7 years? Why do you ask? That’s because Gary has obligated himself to a monthly car payment over $1,000 for72 months!

Best observation I can give you is to ask yourself two questions: 1) Do I need a new car? And 2) can I afford a new car.  And one last dagger to the heart is that if Gary wants to get rid of the gas hog he is stuck with having to trade it in on the next car because if he sells it outright he is surely going to have capital gains and recaptured depreciation  to pay tax on.  See blog on embedded tax losses.

Bill Zumwalt
Helping REALTORS with Tax Solutions and Solving Tax Problems for REALTORS
REALTOR Tax Preparation, REALTOR Tax Accountant, Tax Preparation Tulsa, OK
Accountant Tulsa, OK, CPA Tulsa, OK, Tax Prep Tulsa, OK, Tax Savings Tulsa, OK, Tax Accountant Tulsa, OK
The Tax Coach for REALTORS

William T Zumwalt CPA,CTC, PLLC
5416 South Yale Ave
Suite 120
Tulsa, OK 74135
918-583-1040
855-993-3339
Bill@TeamZumwalt.com
www.TeamZumwalt.com

Show All Comments Sort:
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Love your tips... tailored to the guys and gals wearing blue and gold "R"'s, the hardest working letter in the alphabet. Right up there with C, P, and A.

Nov 20, 2013 09:45 PM
Anonymous
Bill Zumwalt

Thanks for your comment Andrew.  It's that time of year to be tax planing so be sure to give your tax guy a call before year end.

Nov 21, 2013 12:14 AM
#2
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Hi Bill, I can't find your blog about embedded tax losses. I looked back through a few months of your AR blog and went to your outside blog and didn't find it there. Would you please share the link? Thanks.

Nov 22, 2013 01:48 PM
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Bill, although I'm not interested in a big SUV or pick-up truck, I am in the market for a new car and planning to call me CPA in the morning.

Nov 24, 2013 01:21 AM