Tax deduction for self employed realtor (auto purchase)?

Question

I've purchased a new vehicle in October for my Real Estate practice. I bought it specifically because it was needed for my Real Estate career. It will be used primarily for work (90%). If I planned to use the mileage deduction for the first 10 months of the year, what kind of tax deduction can I get for this new car purchase for the other 2 months? Do I skip the mileage deduction and write off the total purchase price of the new vehicle for a one time deduction? Do I only write off 90% of the monthly car payment for the life of the loan? How do I do this? I DO know that I can write this off as a business expense, just not sure how. I'd like to get the biggest deduction THIS year, rather than depreciate it over a few years. It would be in my business expenses (not my families itemized deductions). Also, I'm just filing as self employed; I'm not incorporated. My husband has a normal W-2 taxes taken out kinda job and we file married filing jointly.

Answer 1

To shaydzofluv - so many incorrect items in one response....wow.

Your percentage use is determined by the mileage. It may end up being 90% but it will probably end up being something else. You need to track your miles and determine it.

Option 1) You can take the standard mileage rate (44.5 cents per mile in '06 and 48.5 cents per mile in '07). With this option you only have to track miles. This option is easier as you only have to track mileage.

Option 2) You can take a percentage of your "actual" expenses. Actual expenses are depreciation, interest, gas, oil changes, repairs, etc. The percentage is determined by your total business miles versus your total miles for the year. This method would probably give you are higher deduction in the first couple years. Obviously, this method is much more difficult as it requires you to not only track mileage but any other car related expenses.

Generally you can switch between methods each year except if you choose actual in the first year, you must stick with actual for the life of the car.

Needless to say, most people just take the standard mileage rate but, if your up to it, actual expenses may give you a bigger deduction.

Answer 2

The amount of the payments and the length of the loan are not relevant if you purchased the car. You depreciate the car over its expected life (as defined by the IRS). All fuel and maintenance costs are deductible subject the the percentage of business use. You still have the option of using the mileage rate instead of actual expenses.

Answer 3

You may have to depreciate it over a number of years. The section 179 expensing deduction is not available for vehicles under 6,000 pounds. You need to consider which method is best for your new car. you should have an idea of your anual mileage. What will be more tricky is estimating likely expenses over the life of the car. There is, unfortunately, no magic, easy formula. You have to crunch the numbers.

If you choose to do actual expenses rather than mileage deduction, all expenses must be restricted by the amount of private use.

Answer 4

your self employment income is reported on sch C and the personal exemption and standard deduction do not enter into the entries on sch C if the net amount on sch C(income less business expenses) is $400 or more you owe self employment tax, Sch SE this is all forwarded to your 1040, the Sch C is reported the line that denotes Business income when you have found your gross income and AGI if have any credits that apply, then you apply your personal exemptions and standard deduction it is very possible your self employment may not be taxable for income tax but the self employment tax has to be paid if you are 25, this is earned income and could possibly entitle you to some EIC

Answer 5

Go to the IRS web site and pull publication 535 on business deductions. It will give you the options.

Answer 6

Use the mileage deduction for the whole year and the payments, down payments, title, & Tax also. All of the payments since you are using it for work even if its just 90%.