In 2017, purchased a 2018 4Runner SR5 Premium for $36,000. Didn’t need a 4th car but needed the tax write-off and T4Rs historically hold their value. Drove it 2k miles over 3 years and additional 2k miles this past year.
Just sold it with 4k miles to AutoNation for $42,696 on a price match to Vroom.
Then purchased a new 2021 4Runner Trail Special Edition for $42,445. I could have gotten another SR5 Premium for the same price but I opted for the Trail.
I basically swapped out a 4 year old T4R for a new one for the cost of a $599 dealer fee and taxes (TAVT in GA). Still don’t need the T4R but at least I got a great deal.
The car market is in chaos. And where there is chaos, there is opportunity.
Even before the recent surge in car prices, my 4Runner never dropped below $34k wholesale…I had really low miles. When I first bought the car in 2017 (with a decent discount off MSRP), I expected to see $1k-$1.5k depreciation per year.
From a tax perspective, I deducted the entire purchase price using the bonus depreciation allowed under current tax laws.
So you spent $40k+ just to save 10-14k (estimating tax rate) in taxes? Doesn’t make sense when people say they did something for the “tax write off.” Yes you reduced your tax burden, but you had to pay money to do it
Well if you’re selling it for more than you paid for it, not only should you be getting no tax benefit, you should be paying additional taxes on the profit.
Now, you are delaying the tax liability, but you’re not actually saving any money.
@mllcb42 I’m not sure I understand your post. When I bought the 2018, I depreciated the entire purchase amount and had an immediate benefit. It is true that when I sold it recently, I will have to pay back the entire tax benefit plus additional tax on the gain.
But I purchased a 2021 and will take the full depreciation again.
You are correct that I am delaying the tax liability but delaying by itself is a huge tax benefit. Using depreciation to offset current income is a basic tenet of real estate investing…even though you will eventually have to deal with future tax consequences. If you never sell the property, then you maintain the benefit. If tax laws change again to allow for tax deferred exchanges, then you may be able to maintain the benefit for an extended period of time. It’s hard to predict future tax laws. Even if nothing changes, I’m getting free use of the tax benefit up until I sell the asset.
The main point of my original post was to provide a real world example of how used prices are out of whack. It makes no sense that a dealer would pay me more for a 4 year old car than the price I would pay a brand new model of the exact same car.
The post seems to have devolved into tax theory. I’m not a CPA and thus am not qualified to provide anyone with tax advice.
We get a lot of people that come through here asking about 179 depreciation that are under the impression that by writing off their vehicle, they’re saving a bunch of money. They say things like
Which implies that by writing off the vehicle, they’ve saved $15k.
What they neglect to factor in is the income recapture when disposing of the vehicle. People end up talking themselves into buying vehicles they don’t really need, spending dollars to save pennies.
Now, that’s not to say that there isn’t a benefit to delaying tax liability… I agree that there is, but the question you should be asking isn’t “If someone offered to sell you a brand new $40k SUV for $21600 ($36k less 40% tax benefit), would you buy it even if you didn’t really need it?”
It’s “does it makes sense to spend $36k on something you don’t really need to delay $15k in tax liability?”
For the first 4 years, my net outlay was $21600 for a $40k car. And it would have stayed that way if had I not sold the vehicle. It’s true that you have to pay recaptured depreciation if and when you sell. But that doesn’t negate the significance of the tax benefit.
As previously stated, I’m not providing tax advice. And everyone’s situation is different. I’m also not able to predict future changes to tax laws. My statements apply to me, not to everyone. But I personally will continue to utilize all tax benefits that are offered under current tax laws.
And the point I’m making is everyone’s situation is different.
If I never sold, I’d never pay recaptured depreciation.
Or if I sold years later for $15k (cars normally depreciate), I’d only pay $3k-$6k depending on my tax bracket at the time.
And if tax laws change, I may never have to pay even if I sell in the future.
Which is why I don’t believe in generalized recommendations. Each individual needs to determine if it makes sense for them. The law was created as a tax incentive for capital investments. If you can take advantage of it, great. If not, then you shouldn’t.
I think both of us have clearly stated our POVs on Section 179. Let’s get back to lease hacking.
