Depreciation Values

[CAPT MOGUL & Sandy]

It is tax time and Ed would like to know if anyone has some depreciation figures for a 10 year old coach? :)

Thanks, Sandy

[Jon Wehrenberg]

Sandy and Ed,

We used our coach to develop a campground equipment business.

www.jamestownadvanced.com

That is a question your accountant can resolve because I had to keep log books and details of miles traveled, their purpose, plus all related expenses such as fuel, maintenance and campground fees. I believe our accountant used straight line depreciation, five years, and the amount of depreciation and expenses was proportional to personal use.

We may have others better equipped to answer the question than me. It is rewarding if you do it right, and can be less rewarding and maybe evasion if you do it wrong. Your actual basis however is the coach purchase price.

[Petervs]

I did not develop a campground, but did use the bus for some business travel.

We used 5 year straight line depreciation.

I prorated the personal vs business used by days used not miles. In a given year there were a total of 100% days used, x% personal, y% business.

I then added all the ownership costs together, the accountant added in the depreciation, and that was it.

Some years it made a significant difference.

Interesting, after the 5 years, if you keep using it for some business, there is still depreciation left to take until you have taken the entire purchase cost over however many years. But if you sell, you are faced with recapturing the depreciation, so be careful of that.

[Jon Wehrenberg]

Peter's cautionary advice about recapture is correct, however, as long as you have continued business use, you can start depreciating again when you step up to a new or newer bus.

[jack14r]

Jon,you are correct that you can depreciate the new or newer bus but if you don't want recaptured depreciation don't you have to trade or do a like kind of exchange?I don't think that one can sell and then purchase without tax implications,I had this happen with a aircraft several years ago.

[Jon Wehrenberg]

I made the assumption all would recognize you would not be able to sell your old coach or trade it in without recognizing or recapturing its value. At least stepping up to a more expensive coach allows continued depreciation.

Pay me now, or pay me later.

The good news is that being able to depreciate the bus, even if you end up having to pay some taxes on its residual value when it is sold means that the government still has allowed you to avoid or defer some taxes, and since buses do depreciate the amount you recapture is likely to be small.

[Petervs]

I think you can depreciate the bus for a few years as a business used vehicle, then, convert the depreciated asset to pure personal use for a year or two, then sell, trade, or whatever for a new coach and start depreciating all over again. There should be no recapture that way. I hope.

[Jon Wehrenberg]

That's what we did, Peter although only depreciation stopped. We continued to track expenses and pro rate them.

The only time a taxable event occurs on a depreciated asset is when you sell that asset and do not replace it.

[CAPT MOGUL & Sandy]

I have been overwhelmed by your replies to my seemingly simple question, thank you. I would have thought a new bus would be depreciated over an 15-20 year period and a used one over a 5-10 year period, given the cost. My accountant suggested keeping track of total mileage and noting business V personal use. I dont know if I should use an "average fuel used basis at 7MPG (Pro-Driver) or use an "actual" fuel used/maintenance . I had not given thought of daily use instead of mileage, and I think it would depend on individual use. Thanks again for your thoughts. Ed

[Tully]

I actually own my own business. My tax advisor says that she is going to use Section 179 for the write off on the coach. The IRS is going to phase this 179 depreication scale back down to $25,000 in 2010.

However, at this time you can write off up to $125,000 on the coach if being used for business. In fact, you can take the the full $125,000 off in the first year. The maximum you are allowd to dedcut cannot exceed you annual income. So, to take $125,00 write off you must make $125,000.

I will be using the coach and going to car shows and giving out quoted. I am an insurance broker. The business is funding the entire transaction from downpayment to monthly installments.

So, the $125,000 purchase/ write-off would save you around $35,000 in taxes based on 28%.

Since the IRS is reducing this back to $25,000 in less than two years, it only makes sense to take advantage of what the IRS is giving you right now.

Tully

[lewpopp]

Just remember when you go to sell the coach and you sell it for more than it is depreciated down to, you have to pay the looooong tax on the gain.

[Jon Wehrenberg]

That is true Lew, but if you depreciate a coach to zero for tax purposes, and then retain it for 5 more years, the true depreciation over the years of ownership based on what the market will pay will make the gain you have to recapture quite small.

It is far better to be able to depreciate your coach on your tax return than to not be able to do that because you will have paid for that coach with 100% after tax dollars, lost money on the real depreciation, and lost earnings on the invested capital. These buses cost us all some serious money. That is one reason why I consider the price of fuel inconsequential to the real cost of ownership.