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Originally Posted by no_worries
First off, Hamboner, I'll give you the benefit of the doubt and assume that this isn't what you're saying. But it's a point that should be addressed since there's so much misinformation floating around out there.
The idea that buying a new truck for the tax savings is a good one is a complete fallacy. All things being equal, the guy that buys a new truck when his depreciation is up will end up taking home less money than if he'd kept his old one. This is simple math. An O/O doing well will probably be paying, at most, 30-40% in taxes. That means that for every dollar you spend on a truck, you get a tax savings of no more than your tax rate. If you buy a truck for $60,000 and your tax rate is 35%, after 3 years your real tax savings is $21,000. So purchasing the truck ended up costing you $39,000 more than if you just continued to drive your old truck.
I'm not saying that buying a new truck isn't a good idea. Or even buying one every few years isn't a good idea. There are many factors that determine when the right time to buy is and they even vary on an individual basis. However, the idea that you should buy equipment just for the tax benefit is completely wrong. If you find a tax adviser that tells you this it's time to look for someone else.
Without being too technical - the increased upkeep, depreciation factors, and the fact that you are driving an older tractor when you can be in brand new one are just a few of the reasons there is little difference in being paid for. Assuming the average O/O has a note that is gonna be around 60 months to pay off a brand new truck with zero miles ($120,000). When that truck is paid for you will be looking at an over-haul ($15,000) and the fact that your re-sell is gonna be next to nothing.
Yes, I do agree with you that on paper keeping a truck that is paid for is quite enticing numbers wise, but when you get into the rest of the picture there is very lil benefit to being paid for. A guy can run a truck three years, take the best part of his depreciation, and still have good re-sale on his truck. All of this without spending the extra money on overhauls etc. At the very same time you could be trading for a new truck and see very lil difference.
My dad has owned around 15 trucks in his career and has tried both sides of the debate we are having. He is back in a brand new truck after having his last paid off for about 5 years. Somehow, regardless of your calculations he ends up netting about the same money while owning a new truck versus having an older one.
True.....on paper looking strictly at depreciation it does seem like you are better off financialy, but from what I have seen there are no REAL benefits!