Rental Property Investor · Philadelphia · Member since 2020 · 16 posts · 18 votes
I'm a fairly new investor, completed my first BRRR a year ago. My real estate business is under a LLC. I recently accepted a $10,000 business credit card with BOA and they are now offering a business loan for a vehicle (2.49% interest vehicle under $50k) I'm not in the market for purchasing a new car. I have under 2 years left on my car note which is under my personal credit file. I am however considering the offer because the loan would not be connected to my personal credit file. I’m shopping for another BRRR property so to have one less account on my credit would help. My concerns: are business vehicles more expensive to insure? Are there Tax liabilities or incentives? Is it too soon or even worth it?
The major tax benefit as mentioned is 100% bonus depreciation. For this to matter in the current year, you have to have income to absorb it. Also remember when you sell the truck you will have to “recapture” that depreciation (pay taxes on the proceeds minus the basis which will be Zero if you take full bonus depreciation).
As an MLO, I can tell you there is nothing that disqualifies someone for a conforming loan more than a truck payment. The single most thing that separates home owners from non-homeowners is if they bought a car they couldn’t really afford before buying a house. Proceed with caution and know how lenders will see this. If you’re using income for your business to qualify for loans, this will hurt your borrowing power in some way. Fannie and Freddie underwriters often have a hard time understanding bonus depreciation and may see your income as weak if offset a bunch of income by in essence expensing the truck.
I wouldnt if I were you. From a business standpoint how will this new rapidly depreciating asset help grow your business?
I'm a plumber and use my trucks that I buy with the business savings. I currently wouldnt even take a loan out for a truck or car. The commercial stuff is strictly commercial and it's all paid off. Why? Because it's simple. Yeah somethings are able to help with taxes, but I'd be careful because it's probably also something that's more likely to get you flagged.
I have commercial vehicles and the insurance per vehicle is way more than my personal car. Also note that if I get into a accident with a commercial vehicle and I'm doing non commercial stuff they probably wont cover it. If someone breaks a window and steals my cargo, the cargo wont be covered under a typical Com auto policy.
Relating that to REI I'd say it's probably still too soon to think about.
Believe it or not I don't care about the car I was thinking more about how removing one account from my credit file would open the door to a lower DTI for my next property. Bottom line, a car isn't an appreciable asset so I agree.
My c-corp is getting ready to purchase a truck. We will NOT be purchasing a NEW truck. Probably 3 years old, 40k-50k miles on it. With tax law, you can depreciate it ALL in the first year.
Any equipment can be depreciated in the first year up to a million$$. A truck is equipment, but there are some restrictions for autos(6000lbs+). I will only be spending about 30k, but I think you get my meaning about depreciating in year 1. https://www.section179.org/sec...
Its kinda like the cost segregation for multi family properties. Lots of tax benefits. But like everything, you have to spend wisely.
There were lots of tax benefits or loopholes right before the tax reform act of 1986, which is what helped start the big recession that lasted into the 90s. Lots of benefits for real estate and real estate investors right now.
You gotta know history because, as hard as it is to believe, it will be repeated.
We have always deducted new (to the business) vehicles (SUV's & P/ups) using Sect. 179, financed or paid for in cash. We did not need to insure or title them through our S-corps or LLC's.
For many years it has been a great tax reducing option for us. In fact during my 2 iRS audits (2010, 2011) the (documented) high mileage deduction came up, but was allowed. She never once questioned any of the 179 deductions of all the vehicles we had taken since the late '90's.
The major tax benefit as mentioned is 100% bonus depreciation. For this to matter in the current year, you have to have income to absorb it. Also remember when you sell the truck you will have to “recapture” that depreciation (pay taxes on the proceeds minus the basis which will be Zero if you take full bonus depreciation).
As an MLO, I can tell you there is nothing that disqualifies someone for a conforming loan more than a truck payment. The single most thing that separates home owners from non-homeowners is if they bought a car they couldn’t really afford before buying a house. Proceed with caution and know how lenders will see this. If you’re using income for your business to qualify for loans, this will hurt your borrowing power in some way. Fannie and Freddie underwriters often have a hard time understanding bonus depreciation and may see your income as weak if offset a bunch of income by in essence expensing the truck.
I currently own 2 properties one under my LLC. I'm pretty conservative with spending so 1 business credit card, 1 card note in my name. I'm trying to find any benefit to buying a car under my LLC. I'm hoping to buy 2 rentals this year (BRRR) and I thought if I rid my personal car loan from my credit and attach it to my LLC that would help in the long run. But it sounds like my business credit matters too....
Honestly I know alot of people will disagree with this statement but just work on paying off your current car and save your money. Talk to your accountant. If you use your car now for business related you're probably missing some tax writeoff. Yeah you could write off depreciation on a company car. So what you still have to pay for it. Whether it be from your w2 or your investments cashflow.
Most Americans work and get raises then put themselves further in debt. Almost always the first thing a employee buys when they get a nice raise is a new car. Dont repeat the same mistake of going into further debt and trying to use your 2 rentals to fund a car payment.
I agree with working off to pay off my current loan. I’m with you all the way but the problem with that is credit. We need to have credit to gain more of it. It’s an ugly cycle. Good thing is I have a full time job that pays decent. Thankfully deciding to pay a note isn’t an issue I’m already doing it. I’m merely trying to determine if trading my current car out of my name for a newer one under my business is a good move.
Hi Rick, like your post, however what’s your thought on leasing versus buying vehicle under business? Why not lease and deduct the lease while taxing rather than fiddling with the sensitive subject “Depreciation” ?
Hi Pat, like your post. what’s your thought on leasing versus buying vehicle under business? Why not lease and deduct the lease while taxing rather than fiddling with the sensitive subject “Depreciation” ?
I'm not sure this would work but if you are trying to get the car off your personal credit but don't really need a new one does that loan allow you to refinance your current car into it. This would give you some of the business benefits you are looking for while clearing up some of your personal DTI. My thought is sell your car to the business with the business loan. You could sell for your payoff so it is cheap and the payments are spread back over a longer time to lower your payments or sell it for what it is worth to the llc to unlock trapped equity and have that cash to invest in the next deal. I feel this may not be allowed but interested to hear what you all think.
I did inquiry about refinancing my current vehicle under the business but my car mileage and year of the vehicle prevents this. FYI I never put money down on vehicles and I won’t start now. I’ve owned 3 and I’ve always come to the dealer with a pre approval from a credit Union. The business credit stuff is all new to me. Just trying to increase my business credit and real estate portfolio at once.
@George W. You need a better accountant, my auto is written off, when I had my contracting business the same applied, insurance payment, registration, inspection maint etc all are a business expense
@George W. You need a better accountant, my auto is written off, when I had my contracting business the same applied, insurance payment, registration, inspection maint etc all are a business expense
I never said they weren't my accountant is awesome. I'm saying people are to quick to try and find a reason to go deeper into debt.
@T Giddens if you're goal is to simply reduce your DTI, you could consider refinancing the vehicle into the business name. Community banks are likely to be the best option for this. If you choose this route, keep the refinance period short, and depending on the value of the vehicle you may need to pay the difference. In some cases, the commercial policy may or not be much higher. For one of my business vehicles (Ford Transit Connect), the policy was actually cheaper on the commercial side rather than adding to my existing personal policy.
Keep your current vehicle and write off the business mileage. You’ll likely come out ahead. Discuss with your accountant. Vehicles are such a drain on purchasing power, especially when starting out.
I thought leasing a vehicle (not buying) under the LLC is the best way to go. You can write off the payment, interest, taxes, mileage etc.....can someone confirm?