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Vehicle Depreciation for Mixed Business Use - Handling SUV with Varying Business Use Percentages

I run a few rental properties with my wife and we're trying to sort out our vehicle depreciation situation. I have a pickup that's 100% for business, but my wife has an SUV with business use that changes each year (always over 50% though). I'm confused about how the math works when business use changes year to year, and what happens when a vehicle is "over depreciated" at trade-in time. Here's our situation: 2014: Bought a used SUV for $31K. Used it about 65-75% for business (varied slightly each year). Traded it in 2018 for $15K. If I'm remembering right, we had depreciated it well below the $15K trade-in value. 2018: Bought another used SUV for $42K using that trade-in. The weird thing is, when I did taxes that year, the cost basis seemed to be around $50K. It looked like the over-depreciation from the first SUV got rolled into the second one? Is that how it works? If that's right, I'm confused about the logic. We take depreciation deductions exceeding the actual value loss, then when selling, that over-depreciation isn't recaptured but instead gets added to the replacement vehicle's basis? Since this inflates the replacement SUV's basis beyond its actual value ($42K purchase vs $50K basis), that extra $8K just disappears through depreciation and never gets recaptured because it's not part of SUV #2's real value. Am I misunderstanding this? Also, two more questions: 1) How does varying business use percentage affect this? When I traded in SUV #2, my business use that year was 95% (was managing a distant rental property). The depreciation seemed massive that year, almost like it was "catching up" to what would have been if I'd had 95% business use the whole time. I'm concerned about retirement - could something I do now set me up for a big tax bill later? 2) Is there any disadvantage to not replacing this with another 6000+ GVWR SUV? I don't need the accelerated depreciation for cash flow. I care more about total deductions over time than timing. Is claiming $12K yearly for 5 years roughly equivalent to $60K in year one (ignoring time value of money)?

Freya Collins

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Have you considered leasing instead of buying? That's what I do for my rental property business, and it eliminates a lot of these complicated depreciation issues. With a lease, you just deduct the business percentage of your payments each year. No worries about basis adjustments, trade-in complications, or depreciation recapture. For vehicles with varying business use like yours (I'm also in the 60-80% range depending on the year), it's much simpler from a tax perspective. Each year stands alone - if you use it 65% for business, you deduct 65% of that year's lease payments. Next year it's 78%? You deduct 78%. The Section 179 benefit of heavy SUVs is nice for immediate deductions, but with current bonus depreciation rules phasing down, that advantage is shrinking anyway.

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Laura Lopez

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I've considered leasing, but I typically keep vehicles 5-6 years and put on high mileage (30K+ per year) managing rental properties across a wide area. Doesn't leasing usually end up more expensive with mileage penalties for heavy use like mine? I'm curious how you handle that with your rental business. Does the tax simplification outweigh the potential higher costs?

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Freya Collins

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You're right that high mileage can make leasing less attractive. I typically negotiate high-mileage leases (25K miles/year) upfront, which increases the monthly payment but eliminates surprise penalties later. For my situation with 3 rental properties all within 50 miles, it works out financially. With your usage pattern and keeping vehicles 5-6 years, purchasing probably makes more financial sense despite the tax complications. The tax simplification doesn't outweigh the cost difference in your high-mileage scenario. If you're putting 30K+ miles annually while managing properties "across a wide area," the mileage penalties would likely erase any tax-related benefits from leasing.

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LongPeri

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Has anyone used a mileage log app to track variable business use? I'm using MileIQ for my rental property vehicle and it's been a game changer for documenting business vs personal use. The IRS agent I spoke with said good documentation is crucial when claiming varying business use percentages year to year.

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Oscar O'Neil

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I use Everlance and it's been awesome. Automatically tracks my trips to rental properties vs personal driving. At tax time, I just export a report showing my business percentage for the year. My accountant said this kind of documentation is exactly what you need if you ever get audited about vehicle expenses with varying business use.

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LongPeri

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Thanks for the recommendation! Does Everlance let you categorize trips to different properties separately? I need to track which trips go to which rental for our internal accounting, not just the overall business percentage. My current app only tracks business vs personal but doesn't let me sub-categorize the business trips.

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Dylan Evans

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Another option I haven't seen mentioned yet is using a 1031 exchange for real estate investments. If you own investment property and want to sell, you can defer capital gains taxes by reinvesting the proceeds into a similar property. It's not eliminating the tax, but it's kicking the can down the road which can be valuable. Also, if you're planning to sell a business, look into Qualified Small Business Stock exemptions. If you meet certain requirements, you might exclude up to 100% of the gain from federal tax. For monitoring and planning, I've found Personal Capital's free tools pretty decent for basic capital gains tracking across accounts.

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Sofia Gomez

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Is there something similar to 1031 exchanges but for stocks? Like if I wanted to sell my Amazon shares and buy Google instead, is there any way to defer the capital gains?

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Dylan Evans

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Unfortunately, there isn't a direct equivalent to 1031 exchanges for stocks. Those tax-deferred exchanges are specifically for real estate and certain types of personal property, but not securities like stocks or bonds. When you sell stocks, even if you immediately reinvest the money in different stocks, you'll generally have to pay capital gains tax on any profit. The closest option for stocks would be to do your investing within tax-advantaged accounts like IRAs or 401(k)s where you can buy and sell without triggering immediate tax consequences, but that doesn't help for investments you already hold in taxable accounts.

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StormChaser

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Has anybody tried cost basis management across accounts? I started doing this last year and it reduced my capital gains significantly.

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Dmitry Petrov

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I've been doing this for my clients for years. The key is tracking specific tax lots meticulously and choosing which ones to sell based on your current year tax situation. Some brokerages make this easy with their cost basis settings (specific identification method instead of FIFO). Just make sure you're consistent with your approach.

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TechNinja

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Dont forget Guidestar (now called Candid) for nonprofit financials! https://www.guidestar.org/ You can see complete Form 990s there which includes revenue, assets, and even what they pay their executives. Lot of real estate held by religious orgs, educational institutions and foundations. Also for publicly traded REITs (Real Estate Investment Trusts), use any investment site like Yahoo Finance to see their financials. Most big commercial property owners are publicly traded.

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Dmitri Volkov

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Thanks! Do you know if Guidestar shows smaller local nonprofits too? Like if there's a local community development corporation that owns buildings in my town, would they show up there?

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TechNinja

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Yes, Guidestar/Candid includes even small local nonprofits as long as they've filed their Form 990s with the IRS. Community Development Corporations (CDCs) are typically registered nonprofits that must file, so you should find them there. The basic search is free, though they have tiered subscriptions for more detailed info. Even the free level should show you basic financial data and confirm if a local CDC owns specific properties. Just search by the organization name or EIN if you have it.

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Keisha Thompson

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I work for a title company and honestly? The best source nobody mentions is just your local GIS (Geographic Information System) website. Most counties have these now - just google "[your county name] GIS" or "[your county] property search" and you can usually search by address. It wont show income but does show: - Current owner name - Previous sale prices and dates - Tax assessments - Property details - Sometimes even links to deed documents For who ACTUALLY owns it (beyond the LLC) try searching the LLC name in your state's business entity search (usually Secretary of State website).

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Paolo Bianchi

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This is super helpful! I just tried my county's GIS and was surprised how much info is there. Question though - I found an LLC that owns several properties, but when I looked it up on my state's business search, it just shows another LLC as the owner. Is there a way to break through this LLC nesting doll situation?

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Santiago Diaz

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One thing nobody's mentioned yet - make sure you're measuring your space correctly! I made the mistake of just eyeballing my office area and saying "yeah that's about 15% of my apartment" which led to problems during an audit. Get a measuring tape and actually measure the square footage of your workspace versus the total living space. And take photos of your dedicated workspace to show it's actually set up as an office. The IRS is pretty strict about the "exclusive use" requirement - if you've got a TV and game console in there too, you might be in trouble.

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Millie Long

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Do you need to include closets and bathrooms in the total square footage calculation? My apartment is about 800 sq ft total, but my office is 100 sq ft. But there's also 80 sq ft of closet space and a 70 sq ft bathroom. Not sure if those count toward the total or not.

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Santiago Diaz

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You should include the entire square footage of your apartment when calculating the percentage. This includes closets, bathrooms, hallways - everything. So in your case, you would use the full 800 sq ft as your denominator in the calculation. So if your office is 100 sq ft of an 800 sq ft apartment, your business use percentage would be 12.5% (100 รท 800), not the higher percentage you'd get if you excluded some areas. The IRS wants you to use the total square footage of your home, not just the "livable" areas. Make sure you document your measurements carefully!

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KaiEsmeralda

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Just a warning about this deduction - it can potentially trigger an audit flag, especially if you're deducting a large percentage of your rent. When I claimed 30% of my apartment as a home office (legitimately - I run a full-time business from home), I got audited the following year. Make sure your documentation is solid. In my case, I had a floor plan with measurements, photos of my workspace, utility bills showing increased usage during business hours, and a dedicated business phone line. Still got audited, but was able to defend everything successfully.

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Debra Bai

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happened to me too! claimed about 25% of my townhouse for my consulting business and got a letter from the irs 8 months later. such a headache even tho everything was legit. they wanted bank statements, photos, client invoices from my home address, everything!!! took like 3 months to resolve.

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Anthony Young

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5 One important thing nobody's mentioned yet is the Substantial Presence Test and potential tax treaty benefits. Even without a specific tax treaty, your father might benefit from filing Form 8833 (Treaty-Based Return Position Disclosure) if there's any applicable international agreement between the US and his country. Also, if he maintained a tax home in the Middle East and was physically present there for at least 330 days, he might qualify for the Foreign Earned Income Exclusion, which could exclude over $100,000 of foreign earnings from US taxation. But be careful - retirement income and investment income typically don't qualify as "earned income" for this exclusion.

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Anthony Young

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3 I thought the Substantial Presence Test only applies to determining if someone is a resident alien or not? Doesn't having a green card automatically make you a resident alien regardless of physical presence?

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Anthony Young

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5 You're absolutely right - I should have been more precise. Green card holders are automatically considered resident aliens for tax purposes regardless of physical presence, so the Substantial Presence Test isn't relevant in this case. My main point about the Foreign Earned Income Exclusion still applies though. Even without a specific tax treaty, there are provisions that could help reduce his US tax liability on foreign income. However, you're correct that retirement income typically doesn't qualify as "earned income" for the FEIE since it wasn't actively earned during the tax year.

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Anthony Young

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22 Does your father own any property or investments back in his home country? That's another important consideration. If he owns rental property or has investment accounts there, he'll need to report that income too. And depending on the total value, there may be additional reporting requirements beyond just the income. Foreign mutual funds are especially complicated because they're often classified as PFICs (Passive Foreign Investment Companies) which have special reporting requirements on Form 8621 and can be taxed at higher rates.

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Anthony Young

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1 He does have a small apartment that he rents out occasionally and some local investment funds through his bank there. I had no idea about these PFIC rules - that sounds really complicated. Is there a value threshold for when you need to report these foreign investments?

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