Truck depreciation

[LSCAP]

What is the name of your state? NC

I have been told a company can Purchase a work truck, (fill it with tools etc.) and deduct the cost, then depreciate some of the truck value over a period of time.

These trucks are used “on call all day” and have in the past been taken home as “On Call”, and back up for the person on call.
Some companies around here, insist the trucks be taken home.(emergencies or aging the vehicles?)
Some do not. Insurance cost.

Three CPAs agreed with this, and four book keepers. (I live 50 miles away and had been given a truck to work with and take home) My company was bought out about a year ago and the new company doesn’t allow the trucks be brought home which is why I had originally asked around. But company police is company policy.

Recently a book keeper and then shortly thereafter a CPA, both heard me talking to someone who thought I still take a truck home. ( both sneering at my stupidly) said you can not deduct more than the original cost.

Who is right?

If I am wrong…Oh Well. ( I will grit my teeth and stamp my feet.)
If I am right, is there something I can find in writing to back me up if it happens again.

Only a matter of pride on my part. ( and no I do not intend to go back to the sneering people in either case.)

 

[tranquility]

Depreciation is an accounting fiction that attempts to keep the books accurate. When one buys an asset, it's put on the books at cost. (Some parts will be "expensed" immediately--like tax and license.) We all know that in a year, the truck will be worth less. Depreciaiton is the way we try to keep the value of the asset on the books about the same as the value of the asset in real life. Depreciation is going to reduce income a little each year during the assets useful life. Buying the asset does not make the money disappear, it only changes its form. We can't "expense" (or, take all the cost off of our income in the year paid) assets as it screws up the books, we take it over time through depreciation.

There is a rule (Section 179), that allows a business to take the cost of an asset all at once in certain situations. This rule was put into the code to encourage businesses to buy more stuff. If the conditions are true, a business can "expense" or deduct the entire cost of the asset, up to a limit, all in the year paid. The amount expensed cannot be depreciated as well. The books already reflect the issue.

Some assets cost more than can be deducted because of the businesses profit or because of the statutory limit. These assets can both be expensed through 179 and be depreciated. But, only the portion not taken immediately will be depreciated.

Which gets down to the final answer, you will not be able to expense or depreciate more than the cost of the asset even though you may reach the total cost in combination of the two. (Time to grit and stomp.) This only has to do with the cost of the asset itself. In items like trucks, there are other costs as well. Gasoline, repairs, insurance and etc. can all be expensed at the ratio of business/personal use of the vehicle.

I only give the long explination to show *both* of what was told to you could have been correct, depending on how you consider the words used.

 

[LdiJ]

I will also add, that most companies who allow or require employees to take vehicles home have two reasons for doing so. 1) Because employees are "on call" and may have to use the vehicles for legitimate work purposes, or 2) for the safety of the vehicle.

I was the controller for a small business for 15 years, and our employees were required to take the vehicles home, because we did not have a secure place to store the vehicles overnight. The vehicles were safer at the employees homes. This held up in IRS audits.

 

[LSCAP]

Truck and depreciation

To Tranquility:
Believe me I'm Just trying to learn. and you are teaching, which I really appreciate.
And I am going to download what you said and go over it a few times. I love to learn. 68 yrs old and still learning how much there is to learn.

You said, When one buys an asset, it's put on the books at cost. That means if I had a 20,000 profit and bought a 10,000 truck with the 20,000, I still have to pay taxes on the original 20,000 as I have 10,000 cash and 10,000 in truck? Am I understanding that correctly? It sounds right.

You said .. Depreciation is the way we try to keep the value of the asset on the books about the same as the value of the asset in real life. Depreciation is going to reduce income a little each year during the assets useful life.

Does this mean?
Assume, I’m allowed to depreciate 70% of the original cost, over a period of three years. Each year the value goes down, which shows in the depreciation.
If I then junk it and buy another 10,000 truck, to replace the worn out truck I still have my cash profit and another 10,00 truck as part of my profit for the year. but I’ve lost 3000 off the original truck. Reduced profit/value? Is that what you were trying to explain to me?

at the time of purchase could the second truck reflect the loss of three thousand and only be worth 7,000 on the books?

I hate to ask this way, it seems I’m showing my ignorance and being argumentative at the same time. I truly am not being argumentative.

BTW: I can now see why the bookkeeper hates this idea and the company has been going over to leasing. It is confusing, and a lot of work.

Tranquility ..Thank you, thank you for answering and teaching.

Ldij: I agree with what you said. Also they don’t want to worry about what might happen to their trucks, like accidents,drunk driving, etc.
Thank your "both"

 

[abezon]

1. If you sell an asset before it's fully depreciated, you can claim a loss if the sales price if less than the undepreciated cost. In your example, if you bought at $10k, depreciated 7K & sold for 1k, you'd have a loss of $2k.

2. You can only depreciate items you own, so you couldn't depreciate the company's truck & it couldn't depreciate your vehicle.

3. You cannot depreciate more than you originally spent on the asset. However, if you are claiming the standard mileage allowance (which includes a set amount for 'depreciation') instead of actual expenses + depreciation, you can end up claiming more "depreciation" than you originally spent to buy the truck.

4. Leasing is just as much a pain in the *ss, cause you still have to track every mile the truck drives & every penny spent on it, and instead of calculating depreciation (which computers do automatically), you have to track lease inclusion amounts (which computers don't do for you).

 

[tranquility]

You said, When one buys an asset, it's put on the books at cost. That means if I had a 20,000 profit and bought a 10,000 truck with the 20,000, I still have to pay taxes on the original 20,000 as I have 10,000 cash and 10,000 in truck? Am I understanding that correctly? It sounds right.

It depends. First, there could be some depreciation for the business portion of the vehicle. Then, because you made a profit, you could take some of the cost directly through section 179. Also, there could be other considerations depending on the weight of the vehicle.

Assume, I’m allowed to depreciate 70% of the original cost, over a period of three years. Each year the value goes down, which shows in the depreciation.
If I then junk it and buy another 10,000 truck, to replace the worn out truck I still have my cash profit and another 10,00 truck as part of my profit for the year. but I’ve lost 3000 off the original truck. Reduced profit/value? Is that what you were trying to explain to me?

at the time of purchase could the second truck reflect the loss of three thousand and only be worth 7,000 on the books?

Without changing the incorrect numbers, let's say you took some combination of section 179 and depreciation to get to 70% in three years. (I'm not going to make the calculation. For our purposes, $1k in 179, $2k in year 1, $2k in year 2, $2k in year 3.)

In year one, through section 179 and the deprection in that year, your income will be reduced by $3,000. The next year, $2,000 and the year after that $2,000. When you say "junk" it, let's assume the truck had no value after three years. (Obviously not true, at the very least you could bring it to the scrapyard and get the recycling value.) But, let's pretend. You buy a new truck and do the exact same thing with it. Your books will reflect a loss for the realized value of truck 1 minus the book value. Your books will add truck two at full value, less the 179 deduction, less the depreciation taken (or, $7,000). In that year you would (assuming things like enough profit) reduce income by $6,000. ($3,000 loss on truck 1, $1,000 179 deduction and $2,000 depreciation on truck 2.)

 

[LSCAP]

Tax and trucks

To Tranquility,

Using those pretend figures.
In three years the company income was reduced by 3000, 2000 and 2000
For a total of 7000
Then The taxable income was reduced by 6000.
Am I jumping to conclusions?

Are “both” right because I said “can you buy a truck and then write off cost, and depreciation.” They calculated it on the basis of one year?

And the other CPAs calculated that, over a period of time it is possible?

Thanks again, and again for your help.


Sometimes I learn slow, so I can never forget.

 

[tranquility]

I think you get it.

 

[LSCAP]

Truck Tax

To Tranquility.

You've brought me some--Tranquility. And Knowledge.

If you're a guy. You are a great guy.

If you are a female. You are a GREAT GUY AND AN ANGEL.

I save angels for femals. Their beauty is measured from within.

THANKS again and again.