Re: Single Person Sole Proprietorship Catch-22?

""Bye-bye Section 179 deduction!!!""

I hardly think so. The issue is whether, at the time you purchased the
vehicle in question, it was purchased for the purpose of being used in
your trade or business, or was it purchased for personal use and then only
later on converted.

The determination is an objective one based on all the facts and
circumstances - i.e., what would a hypothetical reasonable person consider
your purpose to have been when you bought the vehicle?

If you set up a snow-plow business, including advertising and etc, and
then bought a 4x4 with a plow-blade affixed and you already had three
perfectly servicable cars for personal use, I doubt very strongly whether
anyone would take the position that you had purchased the truck for any
purpose other than business purposes.

In addition, the mere fact that you make some personal use of an asset
that you also use for business purposes does not by itself disallow the
179 deduction. See, e.g., IRS Pub 946, How to Depreciate Property, at
page 17; see also, Treas. Reg. 1.179-1. In fact, personal use will only
completely disallow the deduction if comprises 50% or more of the total
use.

So, even if you bought a truck, made some personal use of it the first few
days, and then began using it exclusively in your trade or business for
the next two years, it would qualify as property purchased for use in an
active trade or business, and would qualify for the Sec. 179 deduction.

The mere fact that you almost immediately began using it in your trade or
business would be sufficient proof that you purchased it with the intent
of using it in your trade or business, and not solely for personal use.

Finally, if you buy it, make personal use of it for two weeks, and then
convert it to 100% business use for the next two years, you are unlikely
to lose on the argument that it was purchased for use in that trade or
business - it would take very strange facts to convince a court that you
plunked down $40,000 for a truck you didn't need in order to make personal
use of it for only two weeks; the only conclusion to be drawn is that you
objectively intended to use it in your trade or business all along, from
the moment you purchased it.

Further, provided you are already engaged in a trade or business, the date
on which a vehicle is considered to be placed in service for use in that
trade or business is, generally, the date on which the vehicle is
purchased or, if later, the day on which it is ready to be used in that
trade or business, EVEN IF NOT SO USED. See, e.g., Sandoval, Jr., et al.
v. Commissioner, TC Memo 2000-189(taxpayer purchased vehicles in years 82,
83, and 84 because he thought he would need them for contracts he bid on,
but because he did not win the bid, he did not need them, and did not
begin to use them in his business until 1985 - nonetheless, the Tax Court
concluded that the vehicles were placed in service for purposes of
depreciation in the year in which purchased, to wit:

"Generally, an asset is placed in service for depreciation purposes when
it is acquired and available for use in business even if it is not
actually used in the business. See Sears Oil Co. v. Commissioner, 359
F.2d 191, 198 [17 AFTR 2d 833] (2d Cir. 1966), affg. in part, revg. in
part, and remanding T.C. Memo. 1965-39 [¶65,039 PH Memo TC]; P. Dougherty
Co. v. Commissioner, 159 F.2d 269 [35 AFTR 669] (4th Cir. 1946), affg. 5
T.C. 791 (1945). All five vehicles were available for use in petitioner's
business when he bought them. Petitioner placed each vehicle in service
for depreciation purposes when he bought it." T.C. Memo 2000-189 at p.
1069.

Thus, the mere fact that you bought a vehicle for use in your trade or
business, but didn't get around to actually using it as such is not going
to completely prevent you from getting a Sec. 179 deduction for the
purchase. If the IRS asserts that you bought the vehicle solely for
personal use, and then converted it, all you have to do is show that, on
the basis of the facts that exist, that a reasonable person would conclude
that you more likely than not intended to use the vehicle in your trade or
business more than 50% of the time when you bought it.

For that purpose, you can look at the facts that occurred subsequent to
the purchase.

.

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