What’s truly ugly?
A tax surprise!
Arthur E. Boyce claimed a $28,749 Section 179 deduction for the cost of his new truck.
In walked the IRS, and it denied the Section 179 deduction because Boyce leased the truck that he thought he purchased. The court ruled for the IRS.
Good-bye, $28,749 tax deduction.
The contract between Boyce and Dan Wiebold Ford Inc. was titled “Motor Vehicle Lease Agreement—Closed-End” and called for Boyce to:
Factors Making This a Lease
The court noted that the attributes of a lease and a sale are often the same or similar, sometimes blurring the distinction between them.
In this case, the factors that persuaded the court that this was a lease were as follows:
Had Boyce acquired title or equity, he would have qualified for the Section 179 deduction because he would have owned the truck.
Note. To claim 100 percent bonus depreciation, you likewise have to own the qualifying vehicle.
Using what the IRS says in Rev. Rul. 55-540, Boyce would have qualified as the owner of the truck if any one of the following was true:
As you can see, there are times when it is difficult to classify a contract as either a lease or a purchase.
If you are thinking of leasing or buying with something other than a straight purchase and would like some assistance, please do not hesitate to reach out to your team at Luster Tax Consulting to work through this with you. Please use the following link to book your complimentary strategy call with your team at Luster Tax Consulting.
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