The Landlord Tenant Eviction Process in Pennsylvania

When a landlord has a tenant who fails to pay rent, a landlord must file an eviction complaint at the local magisterial district court where the property is located.  Once a complaint is filed along with a copy of the lease, a hearing is scheduled in two to three weeks.  It is very important for the landlord to sue for both back rent and possession.  The reason is if the tenant appeals he has to post the lesser of the rent in arrears or three months rent.  

The hearing is very straight forward. The landlord testifies that the tenant has failed to pay rent and a judgment is entered in the landlord’s favor for the amount of rent owed plus court costs and the court will grant the landlord possession.  The landlord can also be awarded attorney fees if they are in the lease.  However, the landlord must have a valid rental license covering the period that he or she is requesting back rent.   

After the magistrate judge enters a judgment and awards a landlord possession, the tenant has the right to file an appeal to the possession portion of the judgment within ten days. After the tenth day, the tenant can still appeal the money portion of the judgment within thirty days of the judgment, but the tenant can no longer appeal the award of possession.  A tenant would file an appeal with the Court of Common Pleas in the county, where the rental property is physically located.  When a tenant files an appeal, they ask the court to enter a Rule to Show Cause, which would require a landlord to file a civil complaint in the court within twenty days. An appeal is conducted de novo, which means a new hearing is required at the Court of Common Pleas and usually takes 9 months for the hearing to be scheduled in Delaware County.

If the tenant does not file an appeal within ten days of the judgment date and the tenant remains in possession of the property, the landlord must then file an Order of Possession with the district court on the eleventh day after the judgement date. The Constable will then call the Landlord in one to weeks after he files for the Order for Possession to arrange to meet him at the property, so  the Constable can remove the tenant from the property and the landlord can change the locks. 

When an appeal is filed by a tenant, the tenant is required to post with the court the judgment in the amount of rent in arrears or three months rent, whichever is less.  If the tenant posts the rent with the court, the tenant will be granted a supersedeas, which means that the Constable cannot move forward with the actual eviction process while the appeal is pending. Furthermore, the tenant must deliver the notice of appeal to the magisterial district court to be granted the supersedeas and serve a copy upon the landlord.

In order to obtain the posted rent after a tenant files an appeal, a landlord must file an application with the Court of Common Pleas so the rent posted by the tenant can be released from escrow.

If a tenant is claiming they are indigent, the tenant can submit an affidavit stating they do not have the financial ability to post with the court the lesser of three months rent or the actual rent in arrears and the court would permit the appeal to proceed.  If the tenant files this affidavit and has not paid rent in the month the appeal is filed, the tenant is merely required to pay one-third  of their monthly rent payment at the time of appeal. The remaining two-thirds must then be posted within twenty days of the appeal.  The tenant must then continue to pay rent every thirty days after filing the appeal with the court.  When a tenant fails to post rent with the court, the landlord can terminate the superseadas by filing to terminate the tenant’s appeal with the Court of Common Pleas.  If you are a landlord and need help evicting a tenant or getting possession, feel free to call Gregory J. Spadea at 610-521-0604.

When To Issue or Not Issue IRS Form 1099

I strongly encourage our business clients, nonprofit organizations and landlords to issue 1099 forms which are required by law. The reason is IRS Form 1099 provides the means of reporting very specific types of income from non-employment related sources that might not be reported elsewhere. If you paid someone for services (other than employees) you must issue them a 1099 by January 31 of the following year. Business income tax returns including IRS Forms 1120S and 1040, Schedule C include a question asking if Forms 1099 were filed as required and by signing your return, you are certifying that your response is true.

I recommend to all my clients to review all disbursements made from January 1, through December 31, summarizing all payments for services to unincorporated individuals and businesses where the accumulated total is $600 or more.  If you pay a Limited Liability Company (LLC) that is taxed like a corporation you still have to issue a 1099 to that LLC.  Make sure you have the correct name, employer identification or social security number and address of everyone you pay before you pay them.

Beyond having to possibly face an IRS or State audit, if you fail to file the correct information by the deadline, fail to include all the required information on a return, or if you include incorrect information, you can be subjected to an array of steep penalties if you cannot show reasonable cause.  If the payee fails to furnish his or her taxpayer identification number (TIN), they are subject to backup withholding at a 28% rate. If you do not collect and pay backup withholding from affected payees as required, you may become liable for any uncollected amount.

Closeup of overlapping Form 1099G Certain Government Payouts and W-2 forms.

Here are a few additional tips of when you do not have to issue 1099’s:

1. Do not send a 1099-MISC to an employee since that is what a W-2 is for.  Remember that someone that performs services for you is either an employee or an independent contractor, but not both.  

2. Do not send a 1099 to someone you’ve paid by credit card, debit card or by services like PayPal. Such payments will be reported on a 1099K that they will receive from their merchant services provider

3. Do not use Form 1099-MISC to report employee business expense reimbursements. Report payments made to employees under a non-accountable plan as wages on Form W-2. 

4. If you pay a non-U.S. citizen who works remotely via the Internet from another country, you do not need to file a 1099 for that person. However, if the foreign worker performs any work inside the United States, you would need to file the 1099. For that purpose, you should have that foreign worker fill out, sign and return to you Form W-8BEN.

5. Do not issue 1099’s to corporations.

If you need help issuing 1099’s or have any questions, please contact Gregory J. Spadea at 610- 521-0604.  The Law Offices of Spadea & Associates, LLC prepares tax returns year round.   

When Can I Deduct Alimony on my Federal Tax Return Ordered Prior to December 31, 2018

When divorce occurs, one ex-spouse is often obligated to make continuing payments to the other spouse. However, for the payments to be deducted by the payer, they must meet the tax-law definition of alimony. For any particular payment to qualify as deductible alimony for federal income tax purposes and meet the tax law definition of alimony, all the following requirements must be met:

  1. The payment must be made pursuant to a written divorce decree or separation agreement such as a temporary support order. Note that payments made in advance of signing a written divorce or separation agreement or before the effective date of a court order or decree cannot be deductible alimony. Such payments are considered voluntary and are therefore nondeductible. The same is true for payment of amounts in excess of what is required under a written divorce decree or separation agreement.
  2. The payment must be to or on behalf of a spouse or ex-spouse. Therefore, payments to third parties, such as attorneys and mortgage companies, are okay if made on behalf of a spouse or ex-spouse and pursuant to a divorce decree or separation agreement.
  3. The divorce decree or separation agreement must state the payments are alimony.
  4. After divorce or legal separation (meaning the couple is considered divorced for federal income tax purposes), the ex-spouses cannot live in the same household or file a joint return for the year they separated or thereafter.
  5. The payment must be made in cash or cash equivalent such as check or money order.
  6. The payment cannot be fixed or deemed child support in the divorce decree.
    Fixed child support simply refers to amounts designated as such in the divorce or separation agreement, so it’s easy to identify. Payments are considered to be deemed child support if they are terminated or reduced by any of the following so-called contingencies relating to a child: a. Attaining the age 18, or the local age of majority.
    b. Death.
    c. Marriage.
    d. Completion of schooling.
    e. Leaving the ex-spouse’s household.
    f. Attaining a specified income level.
  7. The payer’s return is required to include the recipient’s social security number.
  8. The obligation to make payments (other than payment of delinquent amounts) must cease if the recipient party dies. If the divorce decree is unclear about whether or not payments must continue, state law controls. If under state law, the payer must continue to make payments after the recipient’s death, the payments cannot be alimony. Therefore, to avoid problems, the divorce decree should always explicitly stipulate whether a payment obligation continues to exist after the death of the recipient party. Failing this test is probably the most common cause for lost alimony deductions.
  9. There is also an IRS rule that states if alimony payments decrease by more than
    $15,000 per year between years 1 and 2, or years 2 and 3, then part of the payments will not qualify for a tax deduction to the payor (and hence will not be taxable to the payee.) In other words, if alimony payments total more than $15,000 per year then they must last more than one year and cannot be reduced too quickly. The reason for this is because the IRS sees this as a property settlement, not alimony. Because of this rule replacing all monthly payments with a lump sum “alimony” payment that is paid all in one year will often cause a trigger of this recapture rule, since alimony will go down to $0 in year

Keep in mind the Tax Cuts Jobs Act repealed the deduction for alimony paid and the corresponding inclusion of alimony in income by the recipient. The provision is effective for any divorce or separation agreement executed after December 31, 2018, or for any divorce or separation agreement executed on or before December 31, 2018, and modified after that date, if the modification expressly provides that the amendments made by this provision apply to such modification. Thus, alimony paid under a separation agreement entered into prior to the effective date is generally grandfathered.

It is very important to consult a tax attorney like Gregory J. Spadea before signing the marital settlement agreement. You can reach him at the Law Offices of Spadea & Associates, LLC in Ridley Park at 610-521-0604.

Understanding Philadelphia’s Contractor Property Tax Exemption and the Three 10 Year Property Tax Abatement Programs

CONTRACTOR’S 30 MONTH PROPERTY TAX EXEMPTION PROGRAM

Under the contractor’s tax exemption program, the property owner may obtain a real estate tax exemption for up to 30 months from the date the building permit is issued for the increase in the assessed value of the property due to the improvements being made to the property.

The contractor’s tax exemption program applies to developers who are building or rehabbing a residential property that will be leased or sold. Application to the contractor’s tax exemption program must be made by December 31 of the year that the building permit is issued.  Properties that are eligible under the contractor’s tax exemption program include a dwelling unit in a single house, duplex, triplex, townhouse, row house, or multi-family building.

WIlliam Penn on top of Philadelphi City Hall overlooking Philadelphia

The tax exemption under this governmental program begins on the first day of the month after the building permit is issued by the city of Philadelphia’s Department of Licenses and Inspections and concludes 30 months later or until the property is leased or sold, whichever comes first.  You would use the same application as the 10 year tax abatement program and it should be filed at the same time as tax abatement application along with copies of the permits.  

10 YEAR PROPERTY TAX ABATEMENT PROGRAMS

The tax abatement program provides for a real estate tax abatement for a period of 10 years for the increase in the property’s assessed value based upon the improvements made to the property.  The 10 Year tax abatement program is actually divided into three separate application processes depending upon how the property is being used—Section 19-1303(2) (Ordinance 961), 19-303(3) (Ordinance 1130) and 19-1303(4) (Ordinance 1456-A) of the Philadelphia Code.

What part of the tax abatement program a property owner should apply for depends upon whether the property is owner-occupied or an investment property, and, if the property is an investment property, whether the property is being rented or sold after the property improvements are completed, and, finally, whether the improvements to the property are being made to a vacant lot (i.e., new construction) or to an existing building structure.

Ordinance 961 offers a 10 year tax abatement in improvements made to existing residential building structures that will either be sold at the completion of the improvements or occupied by the property owner.

Ordinance 1456-A provides for a tax abatement for new construction of residential properties that will be sold upon completion. A dwelling unit in a single house, duplex, townhouse, row house and multi-family building qualify for a tax abatement under Ordinance 1456-A.

Under Ordinance 1130, property owners may obtain a tax abatement for improvements due to rehabilitation of a preexisting building structure or new construction of commercial, industrial and any other business properties, including rental residential properties. In other words, property owners who newly-build or improve existing commercial and industrial properties should apply for this governmental program.

Both Ordinance 1130 and Ordinance 1456-A require the submission of the tax abatement application within 60 days from the date the building permit is issued, while, on the other hand, the property owner is “asked” to submit the application under Ordinance 961 by Dec. 31 of the year that the building permit is issued.

To illustrate the benefit of the tax abatement programs, if the property owner increases the property’s assessed value from $100,000 to $250,000 through improvements made to the property and, assuming the property owner is eligible for both the contractor’s tax exemption and tax abatement programs, that increase in the property’s assessed value will be exempt or abated from real estate taxation for up to 12-and-a-half years. Under the city’s current real estate tax program, the real estate savings will be well over $20,000.

Under all three 10 year tax abatement programs, the 10-year tax abatement does not begin until the year following the completion of the property improvements.  What happens in many circumstances is that the city reassesses the property soon after the improvements are completed. If the reassessment occurs in the middle of the year in which the improvements are completed, the increase in real estate taxes will not be abated for that year and, thus, the property owner will have to pay this real estate tax increase for the remainder of that year until the tax abatement goes into effect the following year.

That is where the contractor’s tax exemption program comes in. Since the city is prohibited from collecting any increases in real estate taxes for the first 30 months after the building permit is issued, assuming the property improvements are completed well in advance of the expiration of this 30-month period of time, the property owner, if eligible for the contractor’s tax exemption program, will not have to pay for any increases in the assessed value of the property.  This is why it really makes sense to apply for both the Contractor exemption and the 10 year property tax abatement at the same time and attach the building permits to each application.

If you have any questions or need help applying for any of the property abatement programs please call Gregory J. Spadea at 610-521-0604.

Understanding the Accumulated Earnings Tax Before Switching To a C Corporation in 2019

The June 2018 Penn Wharton Budget Model survey indicated that over 235,000 business owners are projected to convert their pass-through businesses to C corporations.  Their primary motivation is to take advantage of the new 21% corporate tax rate under the 2018 Tax Cuts and Jobs Act.  This is particularly important for business owners who can’t fully benefit from the new Qualified Business Income deduction. In fact, the biggest switchers are owners of specified service businesses whose taxable income exceeds $415,000 for married filing jointly filers.

Although the new 21% rate is tempting, C corporations are subject to double taxation. Corporate income is taxed once at the entity level and again when it is distributed to shareholders as dividends. This can be avoided if the corporation retains all of it’s profits to finance growth.  However, this opens the door to the Accumulated Earnings Tax (AET) if profits accumulate beyond the reasonable needs of the business.

The AET is a penalty tax imposed on corporations for unreasonably accumulating earnings. The tax rate on accumulated earnings is 20%, the maximum rate at which they would be taxed if distributed.  The tax is in addition to the regular corporate income tax and is assessed by the IRS, typically during an IRS audit. There is no IRS form for reporting the AET. If imposed, the earnings are subject to triple taxation when eventually distributed to the shareholders. Once at the entity level, then when the AET is imposed and finally when the accumulated earnings are distributed to shareholders.

The AET applies when there is intent to avoid income tax at the shareholder level by accumulating earnings in the corporation. The AET applies even when tax avoidance is not the main reason for the accumulation of income but is only one of several reasons.  Keep in mind the IRS allows for an accumulated earnings credit of $250.000 or $150,000 if you are taxed as a Personal Service Corporation. Therefore, once your retained earnings exceed those limits you need to be concerned about the AET and document why your corporation needs accumulated earnings exceeding that amount.

The fact that a corporation is a holding or investment company is automatically considered evidence of the existence of a tax avoidance purpose unless the corporation can establish it wasn’t formed to avoid tax. A holding company is a corporation in which there is practically no activity other than the holding of investment property. An investment company is one that buys and sells stock, securities, real estate, and other investment property, in addition to holding investment property. If the corporation is not a holding or investment company, a tax avoidance motive is considered present if the corporation has accumulated earnings and profits in excess of the reasonable needs of the business unless it can prove otherwise by a preponderance of the evidence. The IRS regulations identify the following situations that may indicate accumulations beyond the reasonable needs of the business exist:

  1. Loans to shareholders or related parties.
  2. Payments by the corporation that personally benefit the shareholders.
  3. Investments in assets having no reasonable relationship to the corporation’s business.
  4. A weak dividend history.
  5. Retention of earnings to provide against unrealistic hazards.
  6. Working capital levels that appear high in relation to the needs of the business.

7. Salaries paid to shareholder/employees that are either extremely high (avoiding corporate  

     income tax) or extremely low (avoiding shareholder income and employment tax).

The AET is not assessed if accumulated earnings are reasonable in light of business needs. This subjective test can be satisfied by a variety of business reasons including retaining earnings to satisfy the reasonably anticipated future needs of the business.  The IRS regulations provide some broad criteria that can be used to justify that earnings are being accumulated for reasonable business needs. These include:

  1. Providing for a business expansion or plant replacement.
  2. Acquiring a business enterprise through purchasing stock or assets.
  3. Facilitating the retirement of company debt created in connection with its trade or business.
  4. Providing necessary working capital for the business.
  5. Providing for investments in suppliers, or loans to customers or suppliers to maintain the business of the corporation.

6. Providing for contingencies such as the payment of reasonably anticipated losses such as an

    actual or potential lawsuit, loss of a major customer, or self-insurance.

The accumulated amount does not have to be used immediately or within a short period after the close of the tax year, so long as it will be used within a reasonable time depending on all the facts and circumstances relating to the future needs of the business.   

To avoid the AET which is 20% of “accumulated taxable income”, a corporation must be able to demonstrate to the IRS that its accumulations are necessary to meet its business needs. The corporation must have sufficient facts and documentation to substantiate that the plans for present and future business needs require additional funds. A determination of whether the accumulation of earnings and profits is a reasonable business need is based on the facts and circumstances of each case. 

The dramatic reduction in the corporate tax rate from 35% to 21% has sparked renewed interest in the AET. Although it remains to be seen whether flow-through entities will rush to covert to C corporations, those that do will need to pay attention to this tax.  Conversion may be the way to go if owners have no need for distributions and the corporation avoids the AET by proving its accumulations are for the reasonable needs of the business.

If you have any questions, please call Gregory J. Spadea at 610-521-0604.

How Much Long Term Care Premium Can I Deduct From My 2019 Federal Income Taxes

How Much Long Term Care Premium Can I Deduct From my 2019 Federal Income Taxes

The Internal Revenue Service (IRS) is increasing the amount taxpayers can deduct from their 2019 income as a result of buying long-term care insurance.

Premiums for “qualified” long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses including Medicare premiums, exceed 10 percent of the insured’s adjusted gross income in 2019. (It was a lower 7.5 percent threshold for the 2017 and 2018 tax years.  Therefore you must itemize your deductions to deduct any of your medical expenses including long term care premiums.

To be “qualified,” policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of “inflation” and “nonforfeiture” protection, although the consumer can choose not to purchase these features.

These premiums are deductible for the taxpayer in the year paid for himself, his spouse and other dependents. However, there is a limit on the amount of the premium that can be deducted which depends on the age of the taxpayer at the end of the year. Following are the deductibility limits for 2019. Any premium amounts for the year above these limits are not considered to be a medical expense and will not be deductible.

Age Before the Close of the Taxable Year                 Annual Deduction Limit on Premiums

40 or less                                                                                             $420

More than 40 but not more than 50                                                    $790

More than 50 but not more than 60                                                    $1,580

More than 60 but not more than 70                                                    $4,220

More than 70                                                                                       $5,270

In 2019 the IRS announced a change involving the taxability of benefits from per diem or indemnity policies, which pay a predetermined amount each day.  These benefits are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $370 per day, whichever is greater.

If you have any questions on the deductible of Long Term care premiums please call Gregory J. Spadea at 610-521-0604.   

When Can I Deduct Alimony Ordered Prior to December 31, 2018

When divorce occurs, one ex-spouse is often obligated to make continuing payments to the other spouse. However for the payments to be deducted by the payer, they must meet the tax-law definition of alimony. For any particular payment to qualify as deductible alimony for federal income tax purposes and meet the tax law definition of alimony, all the following requirements must be met:
1. The payment must be made pursuant to a written divorce decree or separation agreement such as a temporary support order. Note that payments made in advance of signing a written divorce or separation agreement or before the effective date of a court order or decree cannot be deductible alimony. Such payments are considered voluntary and are therefore nondeductible. The same is true for payment of amounts in excess of what is required under a written divorce decree or separation agreement.

2. The payment must be to or on behalf of a spouse or ex-spouse. Therefore, Payments to third parties, such as attorneys and mortgage companies, are okay if made on behalf of a spouse or ex-spouse and pursuant to a divorce decree or separation agreement.

3. The divorce decree or separation agreement must state the payments are alimony.

4. After divorce or legal separation (meaning the couple is considered divorced for federal income tax purposes), the ex-spouses cannot live in the same household or file a joint return for the year they separated or thereafter.

5. The payment must be made in cash or cash equivalent such as check or money order.

6. The payment cannot be fixed or deemed child support in the divorce decree.

Fixed child support simply refers to amounts designated as such in the divorce or separation agreement,

so it’s easy to identify. Payments are considered to be deemed child support if they are terminated or reduced by any of the following so-called contingencies relating to a child:

a. Attaining the age 18, or the local age of majority.
b. Death.
c. Marriage.
d. Completion of schooling.
e. Leaving the ex-spouse’s household.
f. Attaining a specified income level.

7. The payer’s return is required to include the recipient’s social security number.

8. The obligation to make payments (other than payment of delinquent amounts) must cease if the recipient party dies. If the divorce decree is unclear about whether or not payments must continue, state law controls. If under state law, the payer must continue to make payments after the recipient’s death, the payments cannot be alimony. Therefore, to avoid problems, the divorce decree should always explicitly stipulate whether a payment obligation continues to exist after the death of the recipient party. Failing this test is probably the most common cause for lost alimony deductions.

9. There is also an IRS rule that states if alimony payments decrease by more than
$15,000 per year between years 1 and 2, or years 2 and 3, then part of the payments will not qualify for a tax deduction to the payor (and hence will not be taxable to the payee.) In other words, if alimony payments total more than $15,000 per year then they must last more than one year and cannot be reduced too quickly. The reason for this is because the IRS sees this as a property settlement, not alimony. Because of this rule replacing all monthly payments with a lump sum “alimony” payment that is paid all in one year will often cause a trigger of this recapture rule, since alimony will go down to $0 in year 2.

Keep in mind the Tax Cuts Jobs Act repealed the deduction for alimony paid and the corresponding inclusion of alimony in income by the recipient. The provision is effective for any divorce or separation agreement executed after December 31, 2018, or for any divorce or separation agreement executed on or before December 31, 2018, and modified after that date, if the modification expressly provides that the amendments made by this provision apply to such modification. Thus, alimony paid under a separation agreement entered into prior to the effective date is generally grandfathered.

It is very important to consult a tax attorney like Gregory J. Spadea before signing the marital settlement agreement. You can reach him at the Law Offices of Spadea & Associates, LLC in Ridley Park at 610-521-0604.

Seven Year-End Tax Tips for 2018

Here are 7 tax moves for you to consider before the end of the year.

1. Defer income to next year. Consider opportunities to defer income to 2019, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year- end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

2. Accelerate deductions and take capital losses. You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, paying medical expenses, mortgage interest, and charitable deductions before the end of the year, instead of paying them in early 2019, could make a difference on your 2018 return.

3. Harvest Capital Gains and Losses. Any appreciated stocks that you have held for a year and a day you can lock in the lower capital gains rate by selling at year end. You should also consider selling any stocks that can generate capital losses which you can deduct up to $3,000 after netting all your capital losses against all your capital gains. Keep in mind after you sell a stock you can buy it back after 31 days to avoid the wash sale rules.

4. Maximize retirement contributions. Deductible contributions to a traditional IRA, SIMPLE IRA or SEP IRA or pre-tax contributions to an employer-sponsored retirement plan such as a 401(k), can reduce your 2018 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.

5. Take any required minimum distributions. Once you reach age 70½, you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer- sponsored retirement plans. However an exception may apply if you’re still working for the employer sponsoring the plan). Take any distributions by the date required — the end of
the year for most individuals. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.

6. Beware of the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds
$200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

7. Bump up withholding if you expect to owe tax. If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer to increase your withholding for the remainder
of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered as having been paid evenly through the year instead of when the dollars are actually taken from your paycheck. This strategy can also be used to make up for low or missing quarterly estimated tax payments. With all the recent tax changes, it may be especially important to review your withholding for 2018.

If you have any questions or need any help preparing your taxes please call Gregory J. Spadea at 610-521-0604. The Law Offices of Spadea & Associates, LLC prepares tax returns and advises business and individual clients on estate and tax planning year round.

How Much Can I Deduct If I Buy a Car or Truck for Business in 2018

Typically during the last quarter of the year my clients will call me and ask me how much they can save if they buy a business car or truck by the end of the year.  In light of the Tax Cuts and Jobs Act (TCJA) that was enacted on December 22, 2017 I thought I would write a blog to address it.  There are three vehicle weight categories that affect how much you can expense under Internal Revenue Code (IRC) § 179.  The first is for vehicles that have a gross vehicle weight (GVW) less than 6,000 pounds, the second is for vehicles that have a GVW of between 6,000 and 14,000 pounds and the third is for vehicles that have a GVW of over 14,000 pounds.

I. Passenger Vehicles, Light Trucks and Vans under 6000 pounds

The good news is that the TCJA allows for much bigger depreciation deductions for vehicles used for business. The changes apply to passenger vehicles, light trucks and vans  having a GVW of less than 6,000 pounds.  For 2018, the amount of the depreciation (expensing deduction) for a passenger car or light duty truck or van are as follows:

  • $10,000 for the 1st year,
  • $16,000 for the 2nd year,
  • $9,600 for the 3rd year, and
  • $5,760 for the 4th year and each succeeding year in the recovery period.

The TCJA retained the $8,000 limit for additional first-year depreciation for passenger automobiles. So in 2018, the maximum amount you can deduct for a passenger automobile in the first year is $18,000 (10,000 of regular depreciation plus $8,000 of bonus depreciation.) These numbers assume 100% business use so if the vehicle was used for less than 100% the depreciation deduction would be reduced accordingly.  The deduction will be adjusted for inflation after 2018.

II.   Heavy SUV’s Trucks and Vans Between 6,000 and 14,000 pounds

Heavy SUV’s, trucks, and vans that have a GVW of over 6,000 pounds are not subject to the passenger automobile depreciation limits above but remain subject to the $25,000 IRC § 179 limit, but they are eligible for 100% bonus depreciation if they are above 6,000 lbs.  This is true for both new and used vehicles.  In addition, taxpayers may elect to apply a 50 percent allowance which was the maximum in 2017 instead of the 100 percent allowance now available.

III. Vehicles that weigh more than 14,000 pounds

There is no depreciation limit under IRC §179 for vehicles that have a GVW of more than 14,000 pounds so you can write off the entire vehicle cost.

Therefore, the bottom line is that if you buy a new or used vehicle, that is used 100% for business and has a GVW of over 6000 pounds you can elect to deduct the entire cost of the vehicle in 2018 thanks to 100% bonus depreciation.

For property placed in service starting on January 1, 2018, the maximum depreciation expense deduction for the year is $1 million.  This dollar limit begins to phase out dollar for dollar once total purchases for the year exceed $2.5 million.  Therefore no depreciation expensing can be used once total purchases reach $3.5 million.

If you have depreciation questions or need help with your taxes please call Gregory J. Spadea at 610-521-0604.  The Law Offices of Spadea & Associates, LLC is located in Ridley Park, Pennsylvania.

Understanding the Philadelphia Summary Diversion Program

When someone makes a mistake, gets into trouble with the law, and gets a criminal record, the consequences can be severe. Having a clean record is important in order to take advantage of opportunities like getting into a good college or landing a good job.

The First Judicial District of Pennsylvania, in conjunction with the Philadelphia District Attorney’s Office has created “diversion” programs to divert a criminal case from the path towards trial to a potential resolution that will be more favorable to the person charged. When criminal charges are diverted, it allows the Philadelphia District Attorney’s Office to utilize its limited resources in a more effective manner with the goal of prosecuting more serious crimes. One such program is the Philadelphia “Summary Diversion” Program.

The majority of defendants charged with a summary citation who have not previously participated in the Summary Diversion program are eligible, with the exception of the following charges due to the nature of the charge:

  • Cruelty to Animals;
  • Criminal Mischief;
  • Cutting Weapons;
  • Weapons in general including

In addition, any defendant issued citations by any of the following four agencies also are not permitted to enroll and are automatically scheduled for trial in Philadelphia Municipal Court:

  1. Pennsylvania SPCA (Society for the Prevention of the Cruelty to Animals)
  2. Pennsylvania Department of Agriculture
  3. Pennsylvania Vehicle Fraud Investigations
  4. Pennsylvania Department of Revenue (which handles financial benefits and welfare fraud).

There are exceptions to this general rule, and sometimes my law firm may be able to secure the agreement of the Philadelphia District Attorney’s Office in resolving a Criminal Mischief charge, for example, through the Summary Diversion Program (SDP).

If a defendant’s case is approved for the SDP, the defendant will not enter a plea. Upon successful completion of the program, the Philadelphia District Attorney’s Office will withdraw prosecution of the criminal charges against the defendant.

Defendants accepted into the Philadelphia SDP attend the program on a Saturday. The program takes place at the Philadelphia Criminal Justice Center located at 1301 Filbert Street, Philadelphia, PA 19107. The cost of the Summary Diversion Program is $200, and full payment must be made by money order and payable on the day the defendant attends the program.

For example if you are facing a first time Philadelphia underage drinking or a Philadelphia fake ID charge, the Philadelphia Municipal Court will amend the charge to disorderly conduct and the defendant will not lose their driver’s license as would be the case if a person, often a college student, is convicted or pleads guilty to underage drinking or possessing a false ID.  You can then qualify for the and complete the SDP and get the charge expunged

A defendant’s case will be automatically expunged after successful completion of the Summary Diversion Program (SDP), but it can take up to nine months.

The reason the SDP is better than other Philadelphia diversion programs such as the Accelerated Misdemeanor Program or Accelerated Rehabilitation Disposition is that a person in the SDP isn’t required to serve any type of probation, but only complete the one day class.

If you have any questions or are charged with a crime contact Gregory J. Spadea at 610-521- 0604.

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