Truck gifted to business owner, depreciate it?

[Ross]

I have a Schedule C client who is a sub contractor delivering goods for Menards. His father gifted him a $72k truck. I told him his father would need to file a gift tax return. He wants to know if he can write it off. Is it possible for him to depreciate this gifted vehicle on his Schedule C?

[Uncle Sam]

Was the truck registered in the father's name directly - or through a business entity? If you're not the father's accountant you need an appraisal value for purposes of registering, insuring, and depreciating the truck - let alone the father's liability for showing proper transfer. Once the vehicle is properly registered, titled, insured, etc, then you could depreciate it - but it should be registered in the business's name, not the personal name of the son.

[kathyc2]

Was the truck registered in the father's name directly - or through a business entity? If you're not the father's accountant you need an appraisal value for purposes of registering, insuring, and depreciating the truck - let alone the father's liability for showing proper transfer. Once the vehicle is properly registered, titled, insured, etc, then you could depreciate it - but it should be registered in the business's name, not the personal name of the son.

Since it's a gift, wouldn't the basis for depreciating be the lower of fathers basis or appraised value? Also, unless the Sch C is a LLC, should be titled in name of son.

[Dude]

Has TP considered treating this business as a partnership?

[Ross]

From the brief conversation I had, I believe it is a brand new truck and it is registered to my client.

[Uncle Sam]

If the entity that will be using the truck is a corporation - then it needs to be registered in the corporation name, not the shareholder.

[TaxGuyBill]

If the entity that will be using the truck is a corporation - then it needs to be registered in the corporation name, not the shareholder.

The OP already said it is on Schedule C.

So YES, it can be depreciated. As Kathy said, the Basis is the lower of (1) the cost and (2) the Fair Market Value when it was converted to a business asset. If it was brand-new (son got it from the dealership), those numbers would be the same.

The fact it is brand-new is curious. Did the father actually gift the money for buying a truck (paid for the truck, but the truck was never owned by the father)?

[Ross]

This is his first full year operating the sole proprietorship. I met w/ him briefly last evening and learned that he would probably have 40-50k miles this year. I am a proponent of the standard mileage deduction. After explaining that after it is fully depreciated he could not change to the standard mileage deduction he elected to just use the standard mileage deduction.

[kathyc2]

This is his first full year operating the sole proprietorship. I met w/ him briefly last evening and learned that he would probably have 40-50k miles this year. I am a proponent of the standard mileage deduction. After explaining that after it is fully depreciated he could not change to the standard mileage deduction he elected to just use the standard mileage deduction.

Did you do calculations before making this recommendation? At 72K I'm assuming it's some kind of box truck. Google search says 8 mpg on box trucks. Gas at $3 a gallon works out to 37.5 cents a mile for gas only.

[TaxGuyBill]

I agree with Kathy. Although high-mileage vehicles often benefit from the Standard Mileage Rate, gas-guzzlers (including commercial trucks) may benefit from Actual Expenses. If they have Commercial Insurance for the vehicle, that is usually very high priced and may lean towards the Actual Expenses.

This isn't a semi-truck, is it? I don't quite remember where the line is drawn for what qualifies for the Standard Mileage Rate. "Vans, pickup trucks and panel trucks" qualify, but semi-truck tractors do not. I am not sure where box-trucks fall into that. My first guess is that box-trucks don't qualify for the Standard Mileage Rate, but I would need to research that.

[Ross]

It isn't a box truck, I believe it may be a Ford F-150. So I image he gets at least 20 mpg. Thanks for all the replies.

[taxmom34]

72k seems a little high for an Ford F150, what kind of bells and whistles are on this truck? I haven't priced trucks lately so I'm not so sure about the price.

[spanel]

You can get an F150 to $72k. A very nice fancy 4 door... not quite what I would call a work truck. Although I'm not sure who would actually pay that kind of money for an F150 (that would be mark every box and then pay sticker) A $72k dollar F150 would likely cost in the Mid 60,000.

Chris