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Federal Tax Break for MX - 25K

Federal Tax Break for MX - 25K

TonyInNH | 06. september 2015

Sounds to good to be true

vperl | 06. september 2015

Sure does, I expect a tax expert to rip it to shreds, whoops everyone is expert, but me.

Buy a KIA
Be happy

TonyInNH | 06. september 2015

It looks like the tax deduction is for businesses only, big surprise there, but, if true, it could open up a whole new market for the X in the business world.

Ankit Mishra | 06. september 2015

If this is true then Tesla haters are going to go wild. "Tesla is only alive due to subsidies". "Why my money is going to rich people cars?"

Ankit Mishra | 06. september 2015

Hmm, I take back the hater word as in this case the tax break will be large. So there would be some weight to their arguments.

TaxDocMT | 06. september 2015

I am a tax expert. Hence, my user name.

The deduction is a business expense only. The vehicle has to be used in a business (could be incorporated, partnership or sole proprietorship).

All businesses are allowed to write off fixed assets through depreciation. This spreads the cost over several years. Some fixed assets are eligible for an accelerated write-off under Internal Revenue Code section 179. Most personal vehicles are not eligible due to other limitations in the code. But, SUV's with a gross vehicle weight of 6,000 pounds or more are eligible for the $25,000 first year write off. The balance of the purchase price is depreciated.

I would guess most everyone buying a Tesla who owns a business will run it through the business. This is not a Tesla tax break. Of course, that won't stop irrational people from using it as an excuse to criticize.

Daniel_L | 06. september 2015

Does this apply to Canada as well?

sbeggs | 06. september 2015

I thought Model X would weigh 5,000 pounds rather than 6,000.

carlk | 06. september 2015

You're right. It does not look like he got the weight right.

TonyInNH | 06. september 2015

The tax code applies to SUVs over 6000 lbs, we'll only know for sure once the final specs on the X are released.

Ankit Mishra | 06. september 2015

Umm, okay. Got excited for nothing. I don't think X will cross 6000 lbs.

Jonathangarner | 06. september 2015

According to the internet, the gross vehicle weight of the MS is 5,710 because passenger or cargo weight is included in the number. The MX GVW should exceed 6,000lbs. I am not a tax expert or even a tax novice, but I hope this is correct as I am buying my MX through my wine tour company.

Roamer@AZ USA | 06. september 2015

Jonathan, You can still depreciate the asset just not on an accelerated basis. The deductions don't change just the timing changes.

Jonathangarner | 06. september 2015

Thanks Roamer. Understood. The front loaded depreciation is attractive to me and will help keep me from chickening out when it's time to pull the trigger.

LauraTesla | 06. september 2015

I was looking at a thread over on TMC this morning.......50% accelerated deduction up to $25k currently......could change at yr end as this usually goes to congress each December. Has been 100% in the past.

This is what they have figured out;

A. Your crossover is a truck if you can make the floor a flat level space with simple tools.

OR

B. Your crossover is a truck if it is 4x4 wheel drive and has 18 cm clearance on the axles. Calls to Tesla said the clearance is 7.2 inches. 18cm = 7.086 inches.

One guys wife writes off a Touareg.

None of them (nor I) are accountants, but they are agreeing at this point the X qualifies.

The big question they were left with was can you use both the $7500 and the 50% ($25k) deduction. They are unsure.
I found a Tesla Forum thread "No electric vehicle tax credit " .....when they ran it through their businesses 1st the $7500 didn't pass though to their personal return. AMT could have been the problem here, which shouldn't effect me for a couple of years because of large construction deductions. The thought was to buy it personally then transfer it to their business......also be sure to deduct the charging station and the electricity at home for the business vehicle.
I was going to run this past my accountant, but since it is "new territory" it might make his head spin....@TaxDocMT due you have anymore thoughts on be able to claim both the $7500 and the $25k. Thks

sbeggs | 06. september 2015

Hmmm, I will deduct the $25K in our personal wine consumption business. 14CASESFOR2 will be our new license plate.

carlk | 06. september 2015

Googled the definition:

The gross vehicle weight rating (GVWR), or gross vehicle mass (GVM) is the maximum operating weight/mass of a vehicle as specified by the manufacturer including the vehicle's chassis, body, engine, engine fluids, fuel, accessories, driver, passengers and cargo but excluding that of any trailers.

MX is likely to meet this definition of 6000lb gross weight. We need to wait for the official specs to come out. Tesla should take this into consideration when they publish the spec. I know there are people who will attack this as give away to the rich but why no one has said or done anything when it was used for Hummers?

LauraTesla | 06. september 2015

According to section 179 linked on the TMC thread.....it has to be 6000 lbs ......OR.....you can take all the seats out with hand tools .......OR ........it has to be 4x4 wheel drive and 18 cm clearance at the axles.....The X is 4x4 wheel drive and per Tesla is 7.2", it is .214 inches over spect....make sue u get the suspension package AND THE 22 inch tires I guess.....

The X does not need to be over 6000 lbs. to qualify.........TMC thread said they were told it is 5710lbs.

TaxDocMT | 06. september 2015

@LauraTesla - there is no problem claiming both the plug in credit ($7,500) and taking a Section 179 deduction for the same car. The tax cost of the car is reduced for the credit you take, but for a MX, obviously there remains more than enough cost to claim the full $25,000 Sec 179 deduction.

@carlk - your definition is correct. As many have noted, we'll have to wait and see what the GVWR is that is stamped on the metal plate that goes on every car, but I also expect it will be well above 6,000 pounds.

@LauraTesla - could you link to the TMC thread? I have problems finding things there. I've never heard of a clearance test in defining an SUV, and I am very doubtful that any such test produced by the Internal Revenue Service would be measured in centimeters. If I can look at that thread, I may be able to discern where this information is coming from.

Also, relating to your comment about passing the credit to a business owner, that would not happen if the purchasing company is a "C Corporation". The business will claim both the credit and the Section 179. If the business is a partnership or sole proprietorship, then both the credit and the deduction would end up on the owners personal returns.

@Daniel_L - I have no idea about Canadian taxes. I'm strictly a US tax guy. I would not be surprised to learn that Canada has a whole slew of incentives for both business assets and green assets.

Red Sage ca us | 06. september 2015

Meh. Still considerably less than what a 'business' could get back on a HUMMER for the better part of a decade.

georgehawley.fl.us | 06. september 2015

I'm think that the vehicle weight without passengers is less than 10% more than the S since the XP90D has a rated range of 240 miles, about 90% of that for the SP90D. The X has a bigger frontal cross-section than the S. Even with the same drag coefficient (not published for the X) some of the loss of range has to be attributed to air resistance. Therefore , the empty weight of the X has to be less than about 5200 pounds. With 7 150 pound passengers (not me :-)) the weight will exceed 6000 pounds. My new LLC, starting up shortly, may be interested in the X. ;-))

ualdriver | 06. september 2015

.....and the accelerated depreciation allowed under Section 179 along with the rest of the depreciation taken over the following years will reduce the car's basis to ZERO. When the buyer goes to sell the car a few or several years down the road, the entire proceeds from the sale will be subject to taxation. It's great to get that upfront depreciation to put up against current income, but for the Model X owner it's likely going to cost the taxpayer a chunk of change when they go to sell. I would guess a Model X is going to still sell for a mid 5 figure amount even after several years, and Uncle Sugar will want his take.

Uncle Paul | 06. september 2015

The section 179 depreciation is only for the first $25,000 of the SUV's price. The balance is depreciated normally.

If you take the accelerated depreciation then it will not need to be recaptured if you sell the vehicle for $25,000 less than you paid for it.

I use this often for my business. I purchase a new Jeep Grand Cherokee every 5 years or so. The difference between my trade in value and the new Jeep is usually around $25,000, so I get to instantly depreciate the whole thing.

Jeep does not weigh 6,000 lbs, but the GROSS weight that includes the vehicle weight plus everything it is rated to carry is 6,200lbs, so it qualifies.

This is just an extra benefit for those business owners that wish to purchase a model X.

In addition, California is putting forward a reg that will eliminate the total sales tax charged on plug in electric vehicles.

They also allow plug in electric vehicles to use the car pool lanes anytime for no charge. Just need a sticker on the bumper.

The government is doing a lot to encourage getting vehicles to go electric, and reduce the pollution emissions in the larger cities.

Believe Electric plug in vehicles will become much more popular in CA.

georgehawley.fl.us | 07. september 2015

@Dan: taxes and death are the two certainties. All else is optional. My heirs will inherit the X and there will be no tax on its residual value. I win:-))

georgehawley.fl.us | 07. september 2015

But I won't be around to celebrate the victory. :-((

speyerj | 07. september 2015

Correct me if I'm wrong, but if you're purchasing the vehicle as a business and you're depreciating it under the business, don't you have to show that you have appropriate amounts of business use? If, for example, you only use the car for business use 10% of the time, only 10% of the cost of the vehicle is available for write off. The IRS can technically ask you to substantiate that business use with mileage logs and job lists. Also, as I recall, since commuting to and from your usual place of work is not considered "business use" you couldn't call your office commute 10-20% business use and the rest personal.

superloud | 07. september 2015

@phawker1, care to start a thread about California waiving sales tax on plug in electric vehicles?
This is the first I've heard of that and surely that would be a huge deal.

TaxDocMT | 08. september 2015

@speyerj - you are correct. The business must be able to substantiate the amount of business use. Personal use becomes income to the employee.

Of course, this rule has been in effect for decades, so those businesses which use vehicles are used to them. This is certainly not a tax break that everyone can use. But, if you can use it (legitimately), it does help justify the price.

ericg | 08. september 2015

This wouldnt be a tax credit, this would be an income deduction right? So you are not saving 25K, just paying taxes on 25K less?

TeslaRossa | 08. september 2015

People have been taking this $25K accelerated depreciation deduction for their business use of their Cadillac Escalades and BMW X5's for years. Not sure why we would expect Tesla SUV owners to do anything differently. The credit was originally designed for heavier trucks used in the business, but the luxury SUV companies figured this out years ago and many have enjoyed this as a way to write off part of the purchase cost against their business income.

TaxDocMT | 09. september 2015

@ericg - this is correct - it is a deduction, and not a credit.

LauraTesla | 09. september 2015

@TaxDocMT Sorry for the delay in providing you links;

LINK FROM TMC; http://bradfordtaxinstitute.com/Free_Resources/Best-Tax-Deduction-Crosso...

LINK FROM CORNELL LAW; "WHAT IS NOT A AUTOMOBILE (THEREFORE A TRUCK) https://www.law.cornell.edu/cfr/text/49/523.5Sport Utility and Certain Other Vehicles

WHAT PROPERTY DOES NOT QUALIFY--IRS WEBSITE;
http://www.irs.gov/publications/p946/ch02.html#en_US_2013_publink1000107404 "You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $25,000 limit does not apply to any vehicle:

Designed to seat more than nine passengers behind the driver's seat,

Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or

That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

QUALIFIES IF THE VEHICLE IS A TRUCK "http://www.bradfordtaxinstitute.com/Endnotes/IRC_Section_280Fd5.pdf

I couldn't find it again on the IRS site, but they appear to use the GVW-- weight of car empty for automobiles and the GVWR - weight of "truck" or crossover (4x4 and 18 cm high)loaded--sticker on the door when it arrives, so if the X is 5710lbs as told to someone on TMC by Tesla Rep it will be over 6000lbs loaded either way it qualifies.

I also figured out (currently) besides the $25k accelerated you can take the normal 1st year depreciation, so first (as of now) is more like $36-38k, then normal depreciation yrs 2 plus.

Again not an accountant, hence why I tried to verify this stuff off of current IRS website.

vperl | 11. september 2015

So, now we are currently up to speed.

TonyInNH | 11. september 2015

One more point is that IF the tax code is revised to pre 2015 levels then the total cost of the X could be deducted. Not sure if it will and it certainly doesn't affect me either way, just pointing it out.

oragne lovre | 12. september 2015

I suggest to keep this interesting thread alive so that prospective X owners, who will have taken advantage of this deduction, will come back to share with other X owners their thought.

GoGreen1 | 15. september 2015

Any thoughts on Section 179 impact to a 'Business Lease'? Given that the fate of this section will be revisited by the Congress, to set the rules for 2016 tax year, what would be the best thing to do..buy vs lease? Thanks!

TaxDocMT | 15. september 2015

Buy vs lease is something your tax adviser, who knows your personal situation, is best to discuss with you. The answer is different for different companies.

Note that if you lease with terms such as a bargain, or dollar buyout, or for a period equal to the useful life of the car, or a lease with other specific terms, it will be considered equivalent to a purchase, and you would be allowed to take a Sec 179 deduction. If the lease is a true "operating" lease, then you can only deduct the actual rental payments.

Milly Amp | 21. september 2015

Thanks so much for useful info TaxDoc. I think I'm in a similar situation as AV. If lease payments, through TM, equal greater than $25K over three years than better to lease ? Or if I finance through my bank, can I get deductions for those payments(or the interest only) AND the GVW deduction ? I'm a small biz sole proprietor with a few, remotely placed, locations. Appreciate the info !

GLO | 07. januar 2016

Has anyone been able to get GVWR from an actual Model X owner? Could someone who ha at heir car open the drivers door,and check?

ian t.wa.us | 07. januar 2016

the bonnie's now sold Sig #2...

Cheers!