Tax Guru-Ker$tetter Letter
Monday, January 05, 2004
Financing of asset has no effect on Section 179 deduction
Heeding the adage that, for every person who asks a question, there are many more out there who want to know the same thing, I share the following.
I have a question concerning IRS form 179, vehicle deduction.
I have a new SUV that I purchased in '03 and use in my real estate business. I currently owe $40K. I will have funds in first quarter '04 to pay off the loan. My question is will I still be able to deduct the vehicle with a "zero" balance owed in '04 tax year therefore eliminating a monthly payment of $600 or should I maintain the payment for the deduction in '04 tax year and beyond?
How much you owe on the SUV, either originally or later on, is completely irrelevant to the depreciation and Section 179 deductions on Form 4562. As I've said on a number of occasions, the 4562 deductions are exactly the same whether you pay cash for a new business asset or if you finance the entire purchase price.
The only difference you would have if you pay off the loan is no more deduction for the business portion of the interest you pay each year.
No offense, but these are very basic issues that your personal tax advisor should know about. It sounds like you should be looking for a new advisor if you want to keep your taxes as low as legally possible.