Personal auto, business use

Dear Tax Talk,
My husband and I would like to purchase a vehicle through a partnership that my company has with Ford. My husband would use the auto as his business vehicle. Ford's guidelines are that the car must be purchased in our personal names and held that way for a minimum of six months. Is it possible to purchase the vehicle in our personal names, have his company make the payments and deduct the car payments on his company's taxes? -- Melanie

Dear Melanie,
Although the company cannot write off the car directly, you could set up an expense reimbursement arrangement with his company that may come close to the same thing.

Payments made to purchase a car are not deductible. Instead, a purchased car is subject to depreciation deductions for the cost of the car.

Interest on car payments is not deductible by an employee. If your husband's company is separately incorporated, then most likely he is an employee of that company and he would not get a deduction for the interest on the car payments.

If in connection with his business, he files a Schedule C, then the car would just be treated as part of that business activity even though it's in your name instead of the name of the Schedule C business. That is, a Schedule C activity is the same as your names individually and filed as part of your individual tax return, even though the business which prompts the filing of the Schedule C may have a different name for business purposes.

Assuming your husband is an employee of his company, he should come up with an expense arrangement that approximates his actual expenses of operating the car for the year. He can do this by completing Form 2106 and dividing the resulting expenses by a monthly car allowance.

For example, assume the car will have $4,800 of depreciation for the first year it is used in business. He can withdraw $400 a month as a car allowance and not need to report it as income on his W-2 since he is accounting for his actual expenses.