Settlment statements from truck lines

[tsuewalker]

Client is a lease/owner of a semi. He pays into escrow for truck maintenance and surety bonds. Are these payments to escrow deductible? Thanks for your help.

[Koss]

Truck Lease

"Escrow" means that the company is collecting the money in advance, and then paying for maintenance and surety when those payments need to be made. So, no the amount paid into escrow is not a deductible expense. What is deductible is the amount paid from the escrow account, for maintenance and surety bonds.

It works like property tax escrow within a mortgage payment. The amount paid to the bank for property tax each month is not deductible; rather it is the amount paid by the bank, to the county, on behalf of the borrower, that is a deductible expense.

But here's another quick piece of advice: Get a copy of the lease agreement, and read it very carefully. You said "lease/owner." Either he is leasing the truck or he owns it. It can't be both. Sometimes they call it a lease, but when you read the contract, the driver will own the truck after all the payments are made. If that's how it works, then it is not a lease. If he owns the truck after making all the payments, then he has effectively purchased the truck and financed it. That means he owns it now.

This makes a huge difference. If he financed the purchase, then the monthly payments are not fully deductible. He can only deduct the portion of the payment that is interest, just like a mortgage. You have to depreciate the truck.

But if it is a true lease, then the monthly payment is deductible as rent for the truck, and there would be no depreciation.

I suggest getting a copy of the lease agreement. But for starters, you can also just ask him if he will own the truck after he makes the last payment.

BMK

[tsuewalker]

Koss, thanks so much for your help. Now I have another question to ask. You are right. He is called an owner operator. He only had that truck from July 23 to September 04. He wrecked it and turned it back into the trucking lines on that day. How do you handle that? Depreciate it for that short time?

[Koss]

Depreciation

For an asset that is acquired and disposed of in the same year, there is no depreciation.

But even if you did take the depreciation, it would simply reduce the basis. There would be no real benefit since you are reporting the disposition in the same year.

BMK