Truck Being Rebuilt & Used in Business

Technical topics regarding tax preparation.
#1
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The spouse of a client, for 2019, claims he couldn't obtain a loan to buy a truck for his handyman business, so he bought a 35 year old truck and has been fixing it up to use in his business. He's spent around $20k on it, which seems to nullify his claim that he needed a loan for a newer truck since he managed to come up with cash for various repairs/expenses for the beater. New transmission, new engine, new windshield, the body/frame, new A/C, etc. Really, I suspect he is rebuilding a dream truck he has wanted and claims it will be used in his business. This guy comes up with all kinds of crazy stuff and I do not trust him, but their divorce should be finalized this year and I should not have to do any further work besides 2019 MFJ return.

Since this beater was still being rebuilt in 2019, zero mileage. New engine, new gauge cluster and odometer. I entered various expenses as separate assets with notation they pertained to the truck, and selected same depreciation method as the truck itself. 100% Sec 179 is kicking in despite the vehicle not having been used at all in the business because of it not being road worthy. Seems MACRS Truck <6k lbs applies, but should the repair category be auto or improvements? Thinking it does not matter.

Sec. 179 treatment seems off to me but I cannot find anything in Sec. 179 that would actually prohibit it. Still, it was NOT used in the business during the year even though that is the claimed INTENT. Leave as is or override Sec. 179 and let ordinary depreciation kick in once he actually starts driving it? This is all on Schedule C activity...
Last edited by CornerstoneCPA on 3-Aug-2020 9:13am, edited 1 time in total.
 

#2
sjrcpa  
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It hasn't been placed in service yet. You probably entered a 2019 acquisition date which triggered depreciation -probably 100% bonus and not 179. I would override and start depreciating when it is actually placed in service.
 

#3
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sjrcpa wrote:It hasn't been placed in service yet. You probably entered a 2019 acquisition date which triggered depreciation -probably 100% bonus and not 179. I would override and start depreciating when it is actually placed in service.


Indeed! This return is frying my brain trying to gather information from the two individuals and referenced spouse is a PITA.
 

#4
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Or just enter an in-service date of next year (01/01/2020 in this case), which is what I do. Calculated depreciation/S179 should then be zero, but it is listed on the asset schedule and carried forward.

At least, that's how Drake works.
 

#5
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Still, it was NOT used in the business during the year even though that is the claimed INTENT.

Its when its "ready and avilable for use" not when its first actually used.

Reg: 1.167(a)-11(e): Property is first placed in service when first placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity.
 

#6
Noobie  
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Sounds to me it's not ready for use, so not in service.
 


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