The bonus depreciation model is a chance to acquire a 1/8th share of a Class A motor home using leverage to create an initial 4x tax-weighted return multiple in the first year, totaling 5x during the depreciation period due to the home’s eligibility for a first-year “bonus depreciation.”

A taxpayer/financier (financier) puts a one-time $12,000 down payment, $10,000 will be applied to the purchase price of the portable home, and 2,000 will be used for legal/administrative fees toward purchasing a 1/8th share of a Class A motor home with a remaining $60,000 per share payable out of future cash flows. Under current depreciation rules, the financier receives a first-year bonus depreciation deduction of $46,080 or 64% of the asset’s basis, with the remaining purchase price deductible over the next four years for a total 5x deduction ratio.

The amount of bonus depreciation available in 2024 is 64% of the basis of the asset placed into service in 2024. While real estate is not eligible for the five-year bonus depreciation, revenue rulings have concluded that when a structure is movable (such as with a wheeled trailer), it is depreciable as personal property. These moto homes are on wheels, can be readily transported, and are therefore considered personal property, not real estate.

Bonus Depreciation

Internal Revenue Code Section 168(k) allows an additional first-year depreciation deduction equal to the applicable percentage of the adjusted basis of qualifying property placed in service during the tax year.

The remaining basis of the property depreciates over the ensuing four years, as follows:

Year Bonus Depreciation

2024 64%

2025 9%

2026 9%

2027 9%

2028 9%

The value of the motorhome, subject to the note receivable, constitutes the depreciable basis. The full-face value of the note counts as its basis. It does not need to be discounted to the present value.

The Parties

The Tax Payer

The taxpayer owns an LLC which acquires a fractional interest in a Class C Motorhome for an initial down payment of $12,000, with the remaining $48,000 payable to a 3rd party lender.

Third Party Manager

The third party manager assists with renting the motorhome out and managing maintenance and storage of the unit.

There will be some costs associated with setting up the unit a a rental. These costs are tax deductible. Additionally, clients are encouraged to actively participate in the process. Material participation is defined as 100 hours spent working on the business. A married couple can divide these hours in any ratio that works best for them.

Deduction Layout

Bonus depreciation is not limited to 30% of your taxable income. You can deduct any amount of bonus depreciation. Suppose the deduction creates a net operating loss. In that case, you can carry that amount back to offset the previous year’s income and carry forward any unused loss to deduct against future income.

Bonus depreciation can be claimed for assets used in rental activities and other passive activities, as well as in a trade or business.

Generally, bonus depreciation applies to capital assets purchased, not to assets contributed into a partnership. The property purchased by the taxpayer includes a fractional interest in the motorhome and the lease, which cannot be legally separated from each other as the lease represents a “security interest” in the motorhome.

Timing

The motorhome must be “placed in service” by 2024, to use the full 64% of the bonus depreciation on 2024 taxes. Accordingly, all orders and deposits should be sent completed by August 31, 2024.

Advantages

The bonus depreciation deduction can generate substantial tax deductions while generating a profit on a fully secured cash outlay.

Steps

We create an LLC. This LLC is funded depending on the number of shares being purchased.
The LLC purchases a motorhome with the funding used as the down payment.
We can assist in arrangements made by a 3rd party to rent the motorhome.
Under current depreciation rules, the LLC receives a first-year bonus depreciation deduction of $46,080 or 64% of the asset’s basis.
The deprecation deduction can offset the income in 2024, 2025, 2026, 2027, and 2028.
The LLC passes the bonus depreciation back to the individual.

You can generate substantial tax deductions while generating a potential profit on a fully secured cash outlay. There is a 4x tax-weighted return multiple in the first year, with an additional 1x in the remaining four years. We look forward to working with you.