Question on financing a used truck

[Graymist]

Would it make more sense to finance a truck purchase out of one's credit line, or by applying for a loan specific to the purpose ? What are the pros and cons of both ?

[pepe4158]

Ummm I went auction, paid cash, and it worked out for me, saved a ton of $, but many here will say what I did was a hell of a risk, n I cant refute that....just worked for me.....G/L whichever you decide.

[GMAN]

While you can use your line of credit to purchase a truck, it is designed more for short term purchases and working capital. I would not want to use up my line of credit for something which could be purchased and used for collateral by itself. You may need the line of credit for something else. If you plan on purchasing a truck at auction, it could be used until you can get permanent financing for it.

[Kurbski]

GMAN Wrote: If you plan on purchasing a truck at auction, it could be used until you can get permanent financing for it.

I understand freeing up capital but is this due to the tax advantages of a loan specific for the business purchase? and interest paid being deductible as well ? or do you depreciate the truck and claim the interest expense also ? Thanks GMAN

[GMAN]

There are several ways in which you can depreciate equipment. One is to own the equipment personally and lease it to your corporation. I am not sure if it is still good this year, but for the last 2 or 3 years Bush changed the way we could depreciate equipment. You could depreciate the entire amount the first year. I believe there was a $150M cap on the equipment purchase. I am not sure if it will carry over this year or not. You didn't have to depreciate it during the first year, but could if you so desired. The IRS has very specific ways in which equipment may be depreciated. Most equipment can be depreciated over 3-5 years. I was primarily speaking about tying up working capital rather than saving money on taxes. A line of credit can be used to help you get through the lean times. If you have receibables and they are lagging behind in collections, then a line of credit may be used to take care of monthly expenses until collections catch up. If you run across a good buy in equipment or something else needed for your business, the line of credit can be accessed to make a needed purchase and save money at the same time. If the line of credit is used up to buy a truck which may be financed through conventional means, then you may not have the resources to make the needed purchase.

[merrick4]

What I think you mean Kurbski is can you deduct personal credit interest which is usally not deductible if you use it to by a business item. I'm actually trying to figure that out too cause I paid for the trailer and APU on credit. All of it except 15,000 was at 0%. The one 15,000 is at 5.99 percent (for life). I talked quickly with a CPA and technically you can do something like lend the money to the business (or yourself to do business) and then it's deductible but to be honest it was just a quick conversation and I didn't get into it further. I would like to know how that works. Best to talk to an accountant.

[Blanket Party]

Due to some poor planning, and being wet behind the ears at one time, I came up short on funding, and as always, a major repair stepped in to make life that much more interesting.

Having no cash, and the truck still having a note at the time, I called my credit union looking for assistance, and they offered me the option of using my pickup as collateral for a loan to get me back on my feet.

I accepted, and later on, asked my accountant if this was wise, and she said since the loan was dated around the time of the repairs, and the loan and repairs were close to the same amount, it would survive an audit as a business expenditure, and I was able to deduct the interest.

Laws may have changed since then, so ask a pro!

[Kurbski]

Blanket Party Wrote: Laws may have changed since then, so ask a pro!

I did, I asked GMAN. I understand the accountant / pro angle as it is best to keep up with the 18 trillion pages of our BS tax codes.

merrick4 wrote:
can you deduct personal credit interest which is usally not deductible

Yes, thats what I was trying to say. Thanks and hope you get a positive response from the Tax man or women...