The $11,560 Year-End Mistake

A business owner plans to buy a new truck for the business. The dealer told him if the paperwork is done and the check written in 2016, he can take delivery on Tues Jan 3rd, 2017 and still take a deduction for it on his 2016 business taxes.

Luckily client decided to double check this advice with his tax advisor, because the dealer is WRONG!

To get any tax deduction in 2016, the truck (or any other business property) must be both purchased AND “placed in service” not later than December 31.

“Placed in service” is IRS-speak for “in a state of readiness and availability for a specifically assigned function.”  The best way to prove a new purchase was “placed in service” is to actually *do* at least one business-related activity or use of the item.

For a new truck that means driving business miles.  If the truck will be 100% business use, driving it from the dealer to your place of business counts.  But safer to show you’ve actually put it to work—make a run to the feed store, or hitch up the trailer and haul a horse.

Even if it is placed in service on December 31, if it genuinely is 100% business use, first year deduction (Sec 179 + bonus depreciation) for a truck can be as high as $11,560.  But if it’s placed in service after that, the 2016 deduction is a big fat ZERO.  That makes taking tax advice from a truck salesman a very expensive mistake indeed.

A word of caution:  The rules for tax treatment of business property, especially things like trucks and computers that often also have personal uses, are complex.  This story describes only one of the many issues affecting deductibility.  Don’t buy a horse based on one bad photo, and don’t make major business decisions based on the general information in a blog post like this.


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