Tuesday, September 27, 2011
New IRS Interpretation Allows Deductions for Three Cars
A new bankruptcy court judgment has been issued out of Central Florida that allows for the operating expenses associated with three automobiles to be claimed by a debtor in order to show that he has no disposable income. So long as it can be shown that the car is essential to the debtor’s ability to provide for his or his family’s production of income.
The IRS makes a distinction between operating costs and ownership costs, and places a cap on both. Operating costs generally include those expenses associated with maintaining and running the vehicle, and as of 2011 cannot exceed $244 in the Southern region. Ownership costs are the monthly expenses associated with the vehicle loan or lease, and cannot exceed $496 for one car or $992 for two cars nationwide.
In this case the debtor was subject to liens imposed by the IRS. He possessed three cars, two of which were used by the debtor and his wife. The third car, which was completely paid off, was used by his oldest daughter to drive to school as well as to transport the family’s youngest two daughters. Because the debtor had complete ownership of the car, he was able to claim a $200 dollar deduction for its operation since it was more than six years old and had more than 75,000 miles, in addition to $239 in operation expenses. Along with the ownership costs claimed for the other cars, the expenses of the third car allowed him to claim that he had no disposable income.
The language in the IRS manual explicitly permits the expenses associated with two cars, yet in this instance the bankruptcy court judge permitted the expenses associated with the third car, as those expenses were reasonably related to the debtor’s ability to generate income in order to support himself and his dependents.