Month: August 2025

Do you have a personal vehicle?

Thanks to the One Big Beautiful Bill Act (OBBBA), you may be eligible for a valuable “no new cash outlay” tax deduction beginning in 2025.

Here’s how it works: If you convert a personal-use vehicle to business use, the law treats it as placed in service on the conversion date. Thanks to OBBBA’s reinstatement of 100 percent bonus depreciation, you may deduct up to 100 percent of the vehicle’s fair market value—as long as you don’t opt out of bonus depreciation.

For example, if your converted vehicle is worth $31,000 and you use it 70 percent for business, you could deduct $21,700 on your 2025 return.

Heavy SUVs, pickups, and vans with a gross vehicle weight rating (GVWR) over 6,000 pounds qualify for full bonus depreciation. Smaller vehicles are subject to “luxury auto” limits—but even those can allow up to $20,200 in first-year deductions.

A few rules to know:

• You must use the lower of your vehicle’s fair market value or adjusted basis at the time of conversion to business use.
• Section 179 expensing is not allowed for converted assets, but bonus depreciation is automatically applied unless you actively opt out.
• All assets in the same depreciation class are treated the same for bonus depreciation—you’re in or out for the entire group.

If you later sell the vehicle, your basis for calculating gains or losses changes depending on whether it’s a gain or loss.

This is a powerful way to deduct the cost of an existing asset without spending new money.

If you want to discuss the conversion of a personal vehicle to business use, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• August 11, 2025

Do you actively engage in day trading and meet the criteria for trader tax status (TTS)? If so, you may benefit from electing mark-to-market (MTM) accounting for your trading business—a strategic choice that can offer significant tax advantages.

Why Consider Mark-to-Market Accounting?

Under the MTM method, you treat all trading gains and losses as ordinary income or loss rather than capital gains or losses. This distinction is important for several reasons:

• No $3,000 capital loss limitation. Ordinarily, capital losses are limited to $3,000 per year against ordinary income. With MTM, this limitation does not apply.
• Full loss deductibility. If your trading results in a loss (as is common, particularly for newer traders), you can deduct the full amount of your trading losses against all types of income—whether wages, investment income, or capital gains—on a joint or single return.
• Wash sale rule exemption. MTM traders are not subject to the 30-day wash sale rule, which typically disallows a loss deduction when you purchase a substantially identical security within 30 days of the sale.
• Ordinary income treatment. MTM profits are taxed as ordinary income. While this may seem disadvantageous compared with capital gains treatment, most traders do not hold positions long enough to benefit from long-term capital gain rates. Additionally, trading income is not subject to self-employment tax.
• Qualified business income (QBI) deduction. MTM traders may qualify for the 20 percent Section 199A deduction for qualified business income.

How and When to Make the Election

Electing MTM accounting is considered a change in accounting method and must be made in a specific time frame.

Deadline. You file the election with your tax return for the year before the year you wish the election to take effect. For example, to apply MTM for the 2026 tax year, you must submit the election with your 2025 tax return (or extension request) by April 15, 2026.

Additional requirements. MTM is a change in accounting. You make the change “automatically” by filing Form 3115.

Missed deadline. It’s too late to file for tax year 2025 (the deadline was April 15, 2025). In limited cases, the IRS may grant relief through a private letter ruling—but this is a costly and time-consuming process that requires demonstrating reasonable cause for missing the deadline.

Alternative Strategy: Using an S Corporation

If you’ve missed the MTM deadline as an individual, consider forming a new S corporation to conduct your trading activity. A newly formed entity may make a mark-to-market election within 2 months and 15 days of the start of its first tax year, offering a fresh opportunity to implement this accounting method.

If you would like to discuss MTM, please call me directly at 408-778-9651.

• By Leon Clinton
• August 7, 2025

If you own a vacation home or rent out a second property, there’s a tax case you should know about—one that could save you thousands of dollars in lost deductions.

Charles M. Akers owned a mountain cabin in Alpine, California, which he rented out through a property management company. He attempted to deduct over $20,000 in expenses on his tax return—but the court denied the deductions. Why? He didn’t follow the IRS rules for proving material participation or distinguishing between personal and rental use.

What Went Wrong?

Although Mr. Akers claimed he spent time maintaining the cabin, he had no logs, receipts, or documentation to back up those claims. Worse, the court reclassified his “maintenance visits” as personal use days—because he couldn’t prove otherwise. As a result,

• the IRS deemed the cabin a personal residence (not a rental),
• the limited rental use (12 days) triggered the 15-day rule, making it a non-taxable event, and
• he lost all potential rental deductions.

How to Avoid the Same Mistake

If you rent out a vacation home or second property—even part-time—be sure to

• keep detailed records of every maintenance task and business-related visit;
• track time spent by others, such as cleaners or repair services;
• understand IRS thresholds (e.g., the 14-day/10% rule, the 15-day rental rule); and
• plan your use and rentals proactively—not after the fact.

Plan Ahead

This case reinforces a critical point: proactive tax planning is essential. The IRS requires documentation, not good intentions. Whether your goal is to deduct expenses, reduce income, or stay compliant, clear records and strategy are your best defense.

If you’re thinking of renting your vacation home (or already doing so), let’s talk now—before year-end—to ensure your property qualifies for the deductions you deserve. My direct line is 408-778-9651.

• By Leon Clinton
• August 4, 2025