How You Can Buy a Tesla Model X and Write it Off as a Business Expense Like Elon Musk

A couple of months ago I was asked an interesting hypothetical question by one of my clients. He’s got his eye on the highly anticipated new Tesla Model 3 that is set for release next year and wanted to know if his business could purchase the vehicle and use it as a marketing expense (assuming it was wrapped with business advertising). His goal was to enjoy the experience of driving the vehicle, but to also gain any sort of tax break he could while doing so. The answer lies below.

Can any business write off a vehicle used for advertising?

First, let’s take a step back and discuss some background on our friends at the Internal Revenue Service (IRS). In 2010, the Internal Revenue Service took a dental practice to court when they noted the full use of a car was reported as a qualifier for a deduction because of an advertisement. The final ruling determined that the dental practice was not allowed to deduct 100% of the car expenses simply because of vehicle advertising. When you think more about it, it makes sense. A dental practice is not in the business of vehicular advertising, and quite frankly, that’s not a style of advertising you see all that often from dental practices anyway. Their cost of adding advertising to their vehicle was likely allowed but not the value of the entire vehicle.

You have to consider what you use a vehicle for, especially when it is for business purposes. Do you travel to client sites, transport supplies, or is it necessary to use other pieces of equipment? Purchasing a vehicle to wrap in advertising (only) probably won’t fly. According to the IRS, “Putting display material that advertises your business on your car doesn’t change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still can’t deduct your expenses for those uses.”

Is it a luxury vehicle?

Next, there is the argument of a luxury vehicle. Most cars (including trucks or vans) fit the IRS definition of a "luxury vehicle," regardless of their cost. If a vehicle is four-wheeled, used mostly on public roads, and has an unloaded gross weight of no more than 6,000 pounds, the car is considered a "luxury vehicle."

The type of vehicle you choose should clearly benefit the business. Purchasing a Corvette with company funds could be a red flag for IRS auditors, unless you can prove that your business needs a luxury sports car. There are methods of doing this if you can make the case that the exotic luxury car is necessary for your business. For example, if the car is used as part of a training program for driving or maintaining exotic cars, or, if you own an exotic car rental business, then you’ll likely have a fair chance of being allowed the entire deduction. As far as writing off the entire value of the car for basic transportation, that would be nearly impossible to justify.

Does it make financial sense?

Finally, consider if it makes financial sense to purchase a vehicle? If you have a legitimate business use for a new vehicle, you have to consider what type of vehicle is most advantageous. Section 179 of the IRS Code can help you save money on your taxes, especially if you buy certain types of vehicles. For 2017, Section 179 allows you to deduct $11,160 for smaller vehicles and $25,000 for vehicles over 6,000 pounds.

There are a few restrictions:

• The vehicle must be used more than 50% of the time for business purposes;

• The vehicle must be a new purchase for the business, it cannot be contributed property;

• The vehicle may not be used for transporting persons or property for hire;

• You cannot deduct more than your business net income for the year. For example, if your net income is $20,000, you cannot use the $25,000 deduction to generate a tax loss for the year.

Some states also have restrictions and additional limits on Section 179 deductions so be sure to speak with your tax advisor regarding any state specific limitations.

In short, it doesn't seem like this hypothetical example would work out favorably for my client. I'm not saying they can't benefit in some way, but they likely can't just buy a Tesla, wrap it in business advertising, and take a 100% deduction.

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