If you’re running a business and paying taxes in the United States of America, you may be able to get a big discount on Cybertruck –– as long as you’re using the truck at least 50% for business use.
Special Tax Deductions for Cybertruck
Every business in America pays between 21% (if you’re a corporation) to 37% (if you’re a sole proprietor in the highest tax bracket) tax on their income. Income or “profit” is defined as Revenue – Expenses. Naturally, there are a lot of rules about what you’re allowed to count as an expense and when, since that can have a big impact on your tax bill.
If you’re purchasing an asset that will be useful for many years, you typically depreciate the cost of the asset over its useful life. Let’s say I have a shoe factory and sell $100,000 worth of shoes in Q1 2020. I decide to go and buy a new $100,000 shoe-making machine, which I expect to last for 10 years.
If I could deduct the full cost of the machine in Q1, I would have $100,000 in revenue – $100,000 in expenses = $0 in profit. Thus I would owe $0 in taxes. But since the shoe machine has a life of 10 years I would likely depreciate the asset by something like $10,000 a year or $2,500 a quarter instead. With only $2,500 in expenses and $100,000 in revenue I have $97,500 of income and owe $20,475 in taxes.
Ouch! Clearly, the way you account for expenses can have a big impact on your tax bill. But many times you don’t have a choice because of the way tax laws or accounting standards force your hand. The thinking goes, the $100,000 expense will help you produce income for 10 years. So the expense should be recorded in the same quarter as the revenue to get a better sense of the true profitability of the business. Restrictions also help make sure people don’t take advantage of tax loopholes and leave the government starved for revenue.
Special Bonus Depreciation
So what does this have to do with Cybertruck? Be patient, I’m getting there.
If you plan to use your Cybertruck 50% of the time or more for business, you qualify for special bonus depreciation in the year of purchase. Normally, that would let you deduct up to 50% of the cost of the vehicle in the year of purchase. but the “Tax Cuts and Jobs Act” (also known as the Trump Tax Cuts) extended special bonus depreciation to 100% in the first year. The only catch is that it starts going back down to 50% at midnight on December 31, 2022. Shit, when does the Cybertruck ship again?
“Late 2021” and “Late 2022”. Better get your reservations in, business owners. Any business that is able to purchase Cybertruck before the deadline can deduct 100% of the cost of the vehicle in the first year. For a $76,000 Cybertruck with Full Self Driving, that’s a tax benefit of $16,000 – $28,000 per truck, with no limit on how many trucks you can buy.
As if fuel and maintenance savings weren’t enough, the special bonus depreciation makes it a no-brainer for any business that pays taxes.
Can I do this with a Model 3?
Nope! Such are the wonders of the tax code, which encourages pollution and the status quo.
They didn’t want people buying “luxury cars” (as in, any expensive car) and getting tax breaks, so they put limits on that.
Luxury cars are capped at $18,000 in the first year or $10,000 if bonus depreciation is not taken. However, pickup trucks and vans over 6,000 pounds have no limit. So, for some bizare reason, Cybertruck is the only Tesla vehicle that qualifies for this tax break without any limits, allowing you to deduct the full cost of the vehicle in the first year.
“But Steve, why does US tax law encourage businesses to buy pick-up trucks with bad fuel economy that pollute the air instead of EVs?”
Why do you think?
In any case, unless they change the law, it looks like early Cybertruck reservation holders will be able to take advantage of this special bonus trump tax deduction for gas guzzlers.
One more thing…
Oh, but there is one more thing… the tax deduction applies to trucks purchased used, not just trucks purchased new. That means that if you buy a truck and resell it to someone who will use it for business, they can deduct 100% of the cost they paid you for the Cybertruck. I expect people reselling their dual-motor trucks for a tri-motor will have no problem finding buyers for this reason –– everyone will be rushing to grab that special bonus tax deduction while they can, and the Cybertruck is a great way to invest in the future of your business by lowering operating costs.
Expect lots of business owners placing reservations for Cybertruck when they start to figure this out. And expect your Cybertrck to have amazing resale value before 2023. Between FSD price increases and commercial demand, I’m sure many early reservation holders will be able to sell their trucks for more than they paid.
UPDATE: Reader Alan Dail commented below with this suggestion. Please keep in mind taxes are not my area of expertise and I really have no idea what I’m talking about. Please consult a tax professional before making any major financial decisions.
Nice article, but it’s also worth considering that it if you drive a lot for work, it may be smarter to take the standard milage deduction of 58 cent/s mile. This can be used on Model 3. Once you take the depreciation, you can’t use the standard mileage deduction anymore. For a car as efficient as the model 3, that could make a massive difference for anyone who drives a lot. $58k deduction for every 100k work related miles driven.Alan Dail