Given the fact that my current Tesla video got so many views – and a lot of the misunderstanding in regards to how tax write offs are applied, here is a follow up. Instagram: GPStephan
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I’d state the biggest complaint in that movie was that people felt my title was “Clickbait” for two reasons:
One, I only discussed the first year of ownership on the car – .
Second, what I do is NOT applicable to everyone, which is where I think a lot of the confusion came from.
When it comes to business write offs, this doesn’t mean that my literal payment is $78.39 a month – rather the opposite. I am paying $640 a month to have the vehicle, but I SAVE money in the time I file my tax return – that brings down the NET ownership cost in the end of the year.
Second year I continue to pay $640 a month – my payment does NOT alter at all.
However – here’s what happens.
I am able to continue to depreciate the value of the vehicle over the following 4 decades. Since I depreciated the car the first year , I have 4 MORE years left that I can continue to reevaluate the value. The car’s tax basis is $40,000 minus $8200 year depreciation, which leaves $31,800 staying to us. We divide that over the 4 years – and this means I will continue to enjoy an AVERAGE of $7950 annually as a write off over the following 4 decades.
During the year, I’m continuing to cover interest on the loan balance – .
I’ve paid $640 a month on the car…that works out to be $7,680 following the first year.
Then I write off $7,950 in depreciation and $1165 in loan interest, which comes out to be an $8845 write away.
In my tax bracket, that saves me about $3095 in earnings …that is subtracted by my the total vehicle payment that year…and that brings my monthly NET from pocket “price ” to $382 per month for the Tesla.
However, what many people overlook is that from my $640 per month payment, just $100 per month is that’s interest – the rest pays my loan, and that’s “equity” I have in the car. So I’m paying an out of pocket cost of $382 after taxes, to get BACK concerning net asset value about $520 a month.
When all of that monthly payment is principle this calculation proceeds until payment’s year, and the vehicle is paid off in full. So after the next year, my “net&rdquo me is nothing. I’m also NOT including the expense of gas savings, because the expense of running this car on power is 1/4th the cost of Gas here in California.
Now HERE is are conflicting particulars when doing so:
First, this is NOT sponsored by Tesla. I wish they would sponsor me, but I love talking about money and finance, and though it’s a subject that’s highly specific to the individual, I like getting people to think about such things.
Second, When I SELL the vehicle, I WILL have to pay what’s called depreciation recapture – because I depreciated the cars worth, if I sell it over the current tax basis, I have to pay taxes on that higher amount as though it’s average earned income.
I also chose to receive a LOAN on the vehicle instead of getting it in money because I understood the interest would be a write off, and I could make MORE than 3.75% if I invest in real estate or in index funds – so this meant that the less money I have tied up in the car, the better. I’m not getting a loan since I CAN’T manage it – I’m not getting a loan s only the SMART thing to do financially.
And finally, for everyone talking about insurance costs – the insurance cost isn’t that bad – insurance companies base their worth on the MSRP of the vehicle when new. For a Model S in a $100k sticker price, even if you buy it USED, it’ll be about as expensive to cover as any other $100k car. My version 3 was $40,000 brand new, and cost just as much to cover as my previous $40,000 Mercedes C – Class. And for anyone curious, I’m paying $215 a month for full coverage on the Model 3 and a Lotus Exige S240.
So I hope that clears up any confusion for anyone wondering.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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