Author: Leon Clinton

Did you purchase a 2022 Tesla Model X (or a similar vehicle) and claim 100 percent bonus depreciation on your 2022 tax return? If so, you should know that the IRS has incorrectly disallowed these deductions, arguing that the Model X is a passenger automobile subject to luxury auto depreciation limits. 

In a case we know of, the IRS incorrectly disallowed a $120,000 deduction—reducing it to just $19,200 and creating unexpected tax liabilities.

Why the IRS Is Wrong

Under tax code Section 280F, passenger automobiles are subject to strict depreciation limits if their curb weight is 6,000 pounds or less. However, the tax code applies a different standard for trucks and vans, using their gross vehicle weight rating (GVWR).

According to Tesla, the Tesla Model X is an SUV and technically (under tax law) a truck with a GVWR of 6,250 pounds, which exceeds the 6,000-pound threshold and qualifies the vehicle for full bonus depreciation. The U.S. Department of Transportation classifies the Tesla Model X as a non-passenger automobile due to its three-row seating and flat-folding interior, reinforcing that it should not be subject to the luxury auto limits.

What to Do If the IRS Challenges Your Rightful Deduction

If an IRS examiner disallows your rightful deduction, take the following steps:

1. Request a supervisor review. Your dispute might get resolved at this level.
2. Consider mediation. A non-binding option may lead to a favorable resolution.
3. File an appeal. The IRS Independent Office of Appeals will likely rule in your favor (remember, you are technically correct on this deduction).
4. Go to Tax Court if necessary. Given that you have precise legal and regulatory support for your rightful deduction, you should win—and you could collect attorney fees too.

Protect Your Deduction

An IRS examiner’s opinion is not final. When you know you are right, you have to stand your ground. 

While you can often resolve an issue like this alone, professional representation can help simplify the process. If you have this or some other issue and want my assistance, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• March 19, 2025

The federal tax law provides relief if a disaster—such as a fire, flood, or hurricane—damages your personal (non-business) property, including your home, belongings, and vehicle. You may be able to deduct these losses from your taxable income, but the rules are complex and often restrictive.

Recent changes to the law have expanded eligibility, allowing more disaster victims to claim these deductions.

Only Losses Due to Federal Disasters Are Deductible

Property losses are deductible only if the U.S. president declares the event a disaster. For example, the loss may be deductible if a wildfire destroys a homeowner’s property and the president designates the wildfire a federal disaster. But the loss is not deductible if the home burns down due to a faulty fireplace.

Only Unreimbursed Disaster Losses Are Deductible

Many, but not all, disaster losses are covered by insurance. You can’t deduct such losses to the extent they are insured. Moreover, if a loss is insured, you must file a timely claim, even if it will cancel your policy or increase premiums. (There’s a different rule for business owners. They can claim business casualty losses without filing an insurance claim.)

The amount of your loss is equal to the smaller of (1) the decrease in the property’s fair market value after the disaster or (2) the property’s adjusted basis before the disaster (usually its cost). You then subtract any insurance or other reimbursement received from the smaller of (1) and (2).

You can use an appraisal or a repair cost to figure out the decline in the property’s fair market value.

Limits on Disaster Losses 

There are strict limits on your deduction for disaster losses. The general rule is that the first $100 is not deductible, and then you can deduct your loss only to the extent it exceeds 10 percent of your adjusted gross income (AGI). You may deduct the loss only if you itemize your deductions on IRS Schedule A.

Fortunately, thanks to the Federal Disaster Relief Act of 2023, enacted by Congress in December 2024, the general rule does not apply to federal “major” disaster losses from January 1, 2020, through January 11, 2025.

Instead, losses from such qualified disasters are subject to a $500 floor with no 10 percent AGI threshold. Taxpayers may claim the loss deduction without itemizing and then increase their standard deduction by the amount of their net disaster losses.

Note that January 1, 2020, date. You likely filed that return and others with no loss deduction. You can now file an amended return using the new rules for those wildfire and East Palestine train derailment casualty losses, and you can also exclude some of the disaster area payments you received.

If you want to discuss the tax treatment of disaster losses, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• March 12, 2025

If you are a member of a multimember LLC taxed as a partnership (as most are) or a traditional partnership, you may sometimes pay for business expenses out of your pocket. These expenses can include travel and meals, car expenses, continuing education, professional dues, and home office costs.

There are two ways to handle these payments:

• the LLC/partnership can reimburse you, or
• you may be able to deduct them on your personal tax return.

Reimbursement by the LLC/Partnership

If your LLC/partnership reimburses you, the payment is (a) tax-free to you and (b) deductible by the LLC/partnership, provided that

• the expenses qualify as business operating expenses,
• you adequately document the expenses, and
• you submit them for reimbursement in a timely manner.

Deducting Unreimbursed Expenses on Your Personal Return

If your LLC/partnership does not reimburse certain expenses, you may be able to deduct them on your tax return—but only if your LLC/partnership has a formal policy of not reimbursing those expenses. This policy must be

• stated in the LLC/partnership agreement or another written document or
• established as a consistent routine within the business.

Your LLC/partnership determines which expenses it will or won’t reimburse. 

If needed, the LLC/partnership can amend its agreements to formalize your reimbursement policy. This amendment must be made by the due date of the LLC/partnership tax return for the year (excluding extensions) and will apply to the entire tax year.

How to Claim the Deduction

You deduct unreimbursed expenses on IRS Schedule E. This deduction reduces your taxable income for income tax and self-employment tax purposes.

What’s the Best Approach?

In most cases, getting reimbursed by the LLC/partnership is the better option. But situations exist where members/partners prefer not to use LLC/partnership funds for these expenses.

If you want to discuss LLC/partnership expenses, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• March 7, 2025