Can Any of Dr. Nip-Tuck’s Lambos Qualify for a Tax Write-Off?
Possibly - If They’re Used to Make Money!
“Kenny Kim, can I write off my Lambo?” asked Dr. Nip-Tuck.
Dr. Nip-Tuck is a hot-shot plastic surgeon in Los Angeles, CA, with a serious love for Lambos.
In fact, he owns four of them:
Lamborghini Huracán – His side gig: renting it to L.A rappers for music videos and “brokie” celebrities.
Lamborghini Aventador – Occasionally rented out to friends and family.
Lamborghini Miura (1966) – A collectible he proudly shows off at LA car shows.
Lamborghini Urus SUV – He takes it to Costco on Sundays to stock up boxes of rotisserie chicken (he’s single and doesn’t like to cook).
Since he uses each Lambo for a different purpose—and didn’t specify which one he was referring to—I couldn’t give him a straight answer about the write-offs. When it comes to the write-offs (a.k.a., depreciation), how Dr. Nip-Tuck uses the vehicle is what really matters.
My answer (as always): “It depends.”
Based on what I knew about how he was using his cars, I guessed that only two would actually result in a deduction that lowers his income. (Can you guess which ones?)
In this article, I’ll break down the rules for depreciation eligibility and explain why using an asset in a money-making activity is the key to writing it off.
Step 1: Is the Asset Depreciable?
For an asset to be depreciable, it must have a limited useful life. That means it must wear out, decay or become obsolete over time. It also must be used to generate income.
For example, land isn’t depreciable because it does not wear out - it’s been around for millions of years. But cars, including Lambos, do wear out over time, so they meet the first condition. However, that’s not enough - the asset also has to be used in a business or income-producing activity.
Can you guess which Lambs are depreciable assets for Dr. Nip-Tuck. I’ll tell you right now.
Reference: IRC §167, Treas. Reg. §1.167(a)-1
Step 2: What Kind of Activity Is the Car Used For?
Now, let’s look at the second criterion: the asset must be used to make money. There are four types of activities an asset can be used for. Let’s review these four categories.
#1: Trade and Business Use
This is the “winner” category that offers the best tax benefits. Assets are considered to be used in a trade or business when the activity is conducted regularly and continuously with a profit motive. These assets qualify for depreciation including accelerated depreciation like the section 179 deduction or a bonus depreciation. Dr. Nip-Tuck rents his Lamborghini Huracán to L.A. rappers and local celebrities year-round, with the intention of making a profit. His clear profit motive makes the Huracán a trade or business asset, making it is eligible for depreciation.
Reference: IRC §162.
#2: Investment Use
Assets are considered to be used for investment purposes when the activity has a clear profit motive, but is not conducted regularly and continuously like a trade or business activity. Investment-use assets are eligible for depreciation, as long as the assets are used to produce rental income.
For example, Dr. Nip-Tuck rents his Lamborghini Aventador to friends and family every so often with the intention to make some money. This may fall into the investment activity category. Therefore, the Aventador would be considered an asset used for investment purposes and could be depreciated, as long as he can show a clear profit motive.
While depreciation is allowed and can be used to used to offset the income generated from the rental, investment-use assets are not eligible for a section 179 deduction.
Reference: IRC §212, IRC §62(a)(4)
#3: Hobby Use:
Hobby-use assets are those used for personal enjoyment, with income generated only incidentally. Since hobby activities are not conducted with the intent to make a profit, the tax treatment of assets in this category is less favorable.
Dr. Nip-Tuck owns the 1966 Lamborghini Miura mainly because it gives him butterflies while cruising down Santa Monica Blvd. While he earns a small amount of appearance fees at LA car shows, he lacks a genuine profit motive. As a result, the Miura falls into the hobby category. Assets in this category are not eligible for depreciation under the current tax rules - so no write-off for Dr. Nip-Tuck.
Reference: IRC §183. Treas. Reg. §1.183-2(b)
#4: Personal Use:
As the name suggest, assets used for personal living, like cars used for shopping at Costco and running errands, fall under personal use category. Since Dr. Nip-Tuck uses his Lamborghini Urus for joyrides (and for impressing Costco shoppers in the parking lot), it is considered a personal-use asset.
The IRS does not allow any deductions for personal expenses. Therefore, there is no write-off for the Urus - no exceptions for flashy toys.
Reference: IRC §262.
Final thoughts
In the end, out of Dr. Nip-Tuck’s four Lamborghinis, only two get the green light for actual depreciation deductions—the ones used to make money. The others, used for personal pleasure and hobby? They get the red light.
Moral of the story: You can’t write off a Lambo that gives you butterflies as you cruise through Hollywood or show it off at LA car shows. But when you put it to work to make money, the tax code might throw you a small bone in a form of depreciation.
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