Business vehicle deduction for the self-employed

[FIKris]

Hi Mustachian tax masters - I have a question for you about the seemingly ridiculously generous section 179 deduction for business vehicles.   

My DH and I are both self-employed, separately registered sole proprietorships.   We're thinking of getting a cargo van like a Nissan NV 2500 or Sprinter (I am taking solar PV classes so I can expand my services to include installing modules and would need a reliable cargo vehicle) and are looking into the section 179 deduction which seems to allow you to deduct up to $25,000 for such a van.

My questions are:
1. DH's sole proprietorship made more money this year and thus contributed the greater portion of our tax liability. Does that mean he should be the one that buys it?  Or does it not matter since we are married filing jointly and both our businesses are sole proprietorships?
2. Can we both use the van for business purposes for our separate sole proprietorships, or would it have to be dedicated to one or the other?

Thanks!

[ketchup]

My DH and I are both self-employed, separately registered sole proprietorships.   We're thinking of getting a cargo van like a Nissan NV 2500 or Sprinter (I am taking solar PV classes so I can expand my services to include installing modules and would need a reliable cargo vehicle) and are looking into the section 179 deduction which seems to allow you to deduct up to $25,000 for such a van.

These don't always mix.  Be careful.  I know a few people that have gotten burned.

I believe you can't deduct mileage if you do a section 179 deduction on a vehicle so you'd have to keep meticulous track of actual expenses.

[jwright]

In order to take the deduction the vehicle has to be used at least 50% for business purposes.  The vehicle also has to be acquired for business use. 

The business that buys the vehicle would be the one to get the deduction.  If you end up sharing the vehicle, that would limit the business use percentage for each of you. 

So let's say your husband's business buys the vehicle in its name.  He uses it for business 80% of the time and you use it for business 20% of the time.  (Assume you have separate personal vehicles and do not use the van personally).  Your husband could take the Section 179 deduction x 80%.  Your husband could also deduct 80% of his actual expenses (he wouldn't get the standard mileage deduction because by virtue of taking 179 you are choosing to deduct actual expenses).  The time you are using the van is a non-business use of your husband's business.  You would not get any of the 179 deduction because your business did not acquire the van (and you are using it less than 50% of the time), but you can deduct mileage or actual expenses for your 20% of the use that you have accounted for. 

If you are both going to use the van, it makes sense for the person who will use the van the most to make the purchase through their business.  Your net incomes will be combined for income tax purposes (but not SE tax purposes), but the business/personal break down will effect the total deduction. 

Keep good (and separate) records!

[NoStacheOhio]

Couldn't the non-van-owning spouse rent the van from the other one?

[CareCPA]

Couldn't the non-van-owning spouse rent the van from the other one?

What would the benefit be (I'm not coming up with anything off the top of my head)? You would just be shifting income from one spouse to another, and it gets recombined on the tax return.

[FIKris]

Thank you very much!  That clears things up a bit tax wise.  Thanks also about the tips on the (un)reliability of the sprinter!

[NoStacheOhio]

Couldn't the non-van-owning spouse rent the van from the other one?

What would the benefit be (I'm not coming up with anything off the top of my head)? You would just be shifting income from one spouse to another, and it gets recombined on the tax return.

You'd get write off against both income streams ... yeah I dunno.

[jwright]

Renting to the other spouse would net to zero...

And I wouldn't want to enter into the business of renting cars; if you truly kept it an arms length transaction you'd have to look at insurance, liabilities, etc.