The "Business End" of Ferrari ownership

Hi everyone --

First of all, let me introduce myself... My name is Chris, and this is my first post here on Ferrari Chat. I recently found this site while looking for information on Ferrari 328s. I will hopefully be taking delivery of my first F-car soon -- I've had my eye out for a while now and have my search narrowed down to a couple (pending a machanic's inspection) -- one in my home state (Connecticut), and another a few states away. I've loved the 308/328 body style ever since I used to watch Magnum PI in reruns after school, and I love the car even more now that I've driven a few. What a fun ride!

Now that I've owned my own business for 15 years, been through all of the requisite ups and downs (the biggest -- the 9/11 / 2001 recession nearly put me out of business) I'm finally in a position to treat myself a bit and get myself into a Ferrari.

I'm able to glean through comments in these forums that many of you here are also business owners, and that some of you are CPAs. Suffice it to say that I hate paying Uncle Sam even a dime more than I have to; I actually enjoy the game of trying to figure out how I can configure my affairs to have the life I want and the things I want while creating the best possible tax scenario for myself and my entities. So my questions to you all are these:

1. What creative strategies are you using to deduct all or part of your prized machines? I know the IRS has their own ideas on luxury items that fall beyond "ordinary & necessary" and activities that can be classified as a "hobby". I've also heard someone say that Ralph Lauren writes off his entire auto collection as a promotional or advertising expense (who knows if this is actually true). Have any of you found ways to 'repurpose' a Ferrari so that it's another type of expense rather than a company car? What about financing through a lease such as the ones offered through Premier Financial Service -- any tax help using one of those? Love to hear what you're doing -- my accountant needs some ideas to help him 'think outside the box'.

2. People I've been talking with who are supposedly 'in the know' (even people who would not benefit from selling me a car) have all been saying that they believe that a 328 in great condition that's cared for and remains that way will most certainly appreciate in value. Some have suggested that this car is drawing lots of interest right at the moment and is at the bottom of it's depreciation cycle and is currently poised for significant appreciation going forward. One person has even indicated to me that he believes that well kept 328s will likely command $100,000 in five years. Any of you have thoughts on this?

I look forward to your replies, and thanks for all of your contributions to this wonderful board -- there sure is a wealth of knowledge here!

Chris

 

Search this, we've covered these topics before. But here is the executive summary:

1. A Ferrari as a business expense is almost always a red flag for an audit.

2. These are just cars, not investments. Enjoy them for what they are, not what they could be worth in 5 years.

Welcome to Fchat.

 

Not a chance of the driver 328s reaching near those numbers in 5 years. Even the zero-mile 1989s rarely break $70K, and those are rare, rare sales. In truth, those aren't really cars, but more of a 1:1 scale model. Eventually given enough time and inflation these static pieces may approach that price, but you're better off investing in something else.

The 328 was built in relatively high numbers for a Ferrari, and so the supply isn't constrained. These are used cars, and regularly used examples will continue to depreciate as mileage and wear accumulate. The 328 has always been popular as a gateway Ferrari, but as prices drop on newer cars such as the 355s, the demand may drop.

The postitive side is that the depreciation rate on the cars is very low, so you're not throwing money away on that the same way you would on, say, a 2005 350Z.

 

The 246 Dino is 10-15 years older than the 328, was made in significantly less numbers, and has already reached its status as both a classic car and a desireable Ferrari of historic significance, yet prices are well under $100K. I don't think these cars are ever going to see significant appreciation, largely because of (relatively) high volume of production. If you want one, you can always find one or more for sale somewhere, so it's always a buyer's market. The desireable cars will appreciate some slowly, much like the Dino as a trendsetter, I think even if they are driven "reasonably." The big dollar six-to-eight figure Ferraris are now vintage cars made originally only in the 10's or 100's, so today they are very rare, rarely come up for sale except at high profile auctions, and therefore command the price of a seller's market. For example, the seemingly immortal 275 GTB which easily commands six figures today was at the time considered a "production car" by the Ferrari factory, and they made 784 examples over four years! This was a high volume Ferrari at the time, but by today's Ferrari production numbers that would be comparable to the ultra rare modern "exotic" Ferraris like 288 GTO, F40, F50, and Enzo (which by the way have also demonstrated appreciation in value due to their low production numbers). Once production of a model is in the thousands, it is unlikely to ever be an investment.

... unless you have another Ferrari bubble and everything labeled Ferrari suddenly comes in hot demand by the general public. I actually think there will be another Ferrari bubble one day, once people get over muscle cars. Sure Enzo is already dead, but what about Pininfarina? And you don't really need someone to die to have a bubble. It can generate on its own for no good reason. When that happens, the clearly logical thing to do is sell the Ferrari and buy the classic Vette or Mustang on the cheap until it blows over.

 

You don't want "Ferrari" to be on your tax return. Not as a hobby. Not as a business. It just screams "Audit me harder than Leona Helmsley."

Yeah, if you legitimately use your Ferrari to advertise your business, you could probably make a case for a deduction...but why put yourself through a guaranteed tax audit to get 30% off of your Ferrari maintenance??

If you want to be a legitimate car dealer, then yeah, you can probably find a legal way to use corporate cash to purchase whatever car you may happen to be driving, Ferrari or otherwise...but why take on a new, unknown to you business separate from your existing one?! That just broadcasts a cry that you are going to be taking your eye off of one business or another.

Jumping into a new market (to you) in the hopes of outsmarting the investors who live and breath in that market every day is generally a bad idea. Yes, there are collectors, traders, and car dealers who can make money selling Ferraris. It's **possible** that you could make money doing that, too. But unlikely.

Ferrari's are depreciating luxury goods. With rare exception, they are for people who can afford to pay cash for their car, pay for professional mechanics to handle all serious maintenance, and be disposed of when done via one avenue or another.

What you *don't* want to do is make yourself car-poor at the expense of your business. Over-spending is the number one cause of business failures. Controlling your cash burn rate separates the inevitable winners from the eventual losers.

The purchase price of a Ferrari is only a beginning. It's not a Honda. You can't get away with not maintaining it. This costs money even if you are able to do all of the work yourself. Insurance costs money. Property taxes on Ferrari's is also expensive, and the odds are that you'll lose money again when you go to sell her.

Buy a Ferrari when you have disposable "mad money" that you don't need for your 401k, IRA, savings pad, or business...not when an unexpected $5,000 car maintenance bill would be the difference in your business surviving another month or not.

If you want a tax write-off for your business, then you might be able to re-locate your corporate headquarters to the Bahamas/Caribean in a tax-free nation. You can still have a corporate branch in whatever U.S. city you prefer to live in, too...lettting your business build up tax free money there by cutting what your company pays yourself (or perhaps have two firms and pay your offshore company consulting fees for their work, an ordinarily legitimate tax deduction for your U.S. company)...anything but trying to tell your local IRS auditor that you want to deduct the purchase price and maintenance of your Ferrari as a "business" expense.

 

Uncle Sam will pay about $.40 a mile for business mileage this year. Just buy the car of choice and claim the miles. If you drive 30K business miles a year, thats about a $12K write-off which if you are in a 35% tax bracket, you will get $4200 of it back. Times ten years of this, you will just about pay for the car!

 

30,000 miles per year in a Ferrari! Wow!

That's one Major Service ($4,000 to $6,000) and one Minor Service (15k miles) per year.

He'd deserve a medal, not a tax break!

 

I think you could go two years between major services if you were driving a Ferrari 600 miles / week. I like the idea of making mileage reimbursement a worthwhile expense for a Ferrari. My accountant says just forget about deducting the car as a business expense, especially because I have other cars.
I think the 328 is already appreciating, but I do not see it going past about $70k in the next five years (for a car that would cost you around $50k in today's market.)
My $.02.
BT

 

Thanks everyone for your replies and insight. All good stuff there. I'm not surprised at all about your responses to my question about the appreciation -- when the guy who threw out the $100,000 in-five-years figure, I figured he was just blowing sunshine up my a**.

Here's what my accountant's been saying with regard to deductions:

It's certainly not illegal for a company to own a Ferrari. And it's not illegal to deduct business use of the car. Depreciation on the vehicle is subject to the limits set by the IRS for luxury autos that they consider beyond "ordinary & necessary". So, that means that that there are severe limitations on the deductibility of the actual cost of the car itself. Cost of ownership, however, is another matter... For example, if I drive the car the way most Ferraris are driven -- that is, few miles per year (like around 3000 of so) AND I'm able to document business use of the car for a percentage of those miles (say 50%-- that percentage could be higher or lower I'm just using it as an example) of the miles driven (to visit clients, trips with clients to dinner, whatever), that 50% of the cost of owning the car -- fuel, repairs, insurance, wash & wax, interior cleaning, interest on financing (if any), property taxes, sales taxes, etc. are all deductible expenses.

Coming up with 50% or better business use of this car doesn't seem like a stretch to me in my personal situation. Which is nice. I do appreciate the fact that the word "Ferrari" on a tax return is asking for an audit, and so I do have to factor that into the equation, and decide if I want to go there. But -- if I am legitimately using the car for business purposes, I feel I'm entitled to the deduction. Why should I pay more than my fair share in taxes just because I drive a cool car? And, an audit wouldn't concern me -- while I use the tax laws to their fullest, I'm not doing anything illegal and I keep good records. It would be a PITA tho...

Another idea we (my accountant and I) had is that since my business is in the entertainment industry (I do photography and film & video production for network and cable TV, among other things) that we may be able to repurpose the car into a "prop" if it were legitimately made available for rent as a prop, with many, many restrictions -- no Dukes of Hazzard s*** allowed, no rappers, no models sitting on the car, owner must be present (and paid to be the car's "wrangler"), car must be trucked to the location at the expense of the production, etc. Our thinking is that this would turn the car from a "company car" to a capital expense (I hope that's the right term). Very, very gray area, but there are companies and private individuals who are currently renting all the fancy cars used in TV & Film to the production companies who need them. Who knows, with my contacts in the industry, the car may even earn its keep (at least in part). It's just a thought -- I'm not saying that I'm going ahead with this, but I'm kicking it around, and "thinking outside the box." If nothing else, I enjoy the process of figuring this stuff out.

No Doubt: Your points are well taken... Your're right about not jepordizing my business by spending it into financial trouble, however, I do have the "mad money" availabe for this, but also want to use my entities and business structures to their fullest -- this is how the rich get richer, no?

I'm already doing the multiple-entity income splitting thing, and it's working well. And the idea of offshore corporations seems like it has a lot of benefits, but I don't think I'm there yet, and currently don't have anyone on my team who can provide competent advice in that arena. You sound like you have knowledge in that area?

Feel free to bat this idea around some more if you all wish... I'd personally love to hear about strategies that you all are using... you can't tell me that everyone here is using after-tax dollars to completely fund their toys...

Chris

 

Folks see the Charity use of my two cars, and I'm sure it's seen as a Tax Dodge.

It's actually just about supporting the Charity.....LOL!

Agree totally with mileage deduction only, as the main benefit. Do not forget MANY insurance policies will insure your car as "Pleasure ONLY, not for work", so make sure you are flanged up there!

Let's just say I have some imagination, as to how to spend my Boss's Car Allowance....

Now if he'd just buy my new ANSAs as "Italian conduit/tubing", I'd be set!

 

Anyone ever created a leasing company, then as an individual leased the car from it ?

 

My first Ferrari was the flagship of my Child Advocates kart racing team, all the pics were lost, from here...... we raised $68,000.00 USD to fight child abuse here in Houston, Texas. Didn't totally fix the problem.........*big sigh*

It kind of ended after 9/11, even my neighbor at AJ Foyt Racing had a tough time beating sponsor money out of the woods.

I'm very proud of my efforts, though. They invited us to run as a support class of the Texaco Grand Prix of Houston. That was fun! (two Pole Positions, one win in '98.......it wasn't as big of a party once they had to guard 20,000 gallons of racing fuel using High School kids with rifles, though.)...... I'd have been scared, but Mario Andretti was there as well, so WTF!!

The later I gave it to my daughter who made it The World's Fastest Art Car, benefiting the Orange Show Foundation.......we had great fun, made Cavallino #133, and met Buddy Guy, he sign a Stratocaster for my son.......with polka dots, you know....

I think if you google "Ferrari Art Car Houston" you'll find the latest pics from this year's Art Car Ball. Lady Valeria got her Cartier ring and was MOST pleased......The Orange Show is all about art and young kids, we tour schools. We swapped the blue car for the yellow one this year.....not everybody got it........

So that's about it, well FFQC speaks for itself...........pics of that somewhere....

 

Oh yea, I was on display once at the Rice University Gallery Art Museum, they let me drive on the sidewalk, and EVERYTHING! LOL!

You see I'm easily amused!!!!!

It would have been better, if the Volvo sedan, covered in singing fishes wasn't there though.......If you've heard Madonna, doing Eva Peron, doing "Don't cry for me, Argentina"...as performed by 200 singing Billy Bass, it loses it's luster after about the sixteenth time...............

 

Nice to have another CT F-Car owner who will be on the site. Glastonbery is not so far that you may want to join the NY tri-state crew for a run or two.
Also congrats on making it in the private sector. I went out on my own 27-years ago and never looked back. Always had a car in the business, and my first few sports cars (P924, Vette, BMW325, P968) were on the books and since they were daily drivers actually used in part for business use, I took the legitimate deductions. However, I now keep the "toys" (P-911C4; F-348 Spider) off the books.

 

I think SlickMurphy is up there, too.........He got his car (308GTB), then kindof quieted down.......

Do a search, you'll find him.......

 

Hi Big Tex, Vinny --

Thanks for the responses,

I eagerly look forward to the day when I finally become a member of the owners ranks... and Vinny, I would love to join you and the NY tri-state crew for a run sometime -- sounds like great fun. I'm actively looking and attempting to find the right car (I have my heart set on a 328 GTS as my first Ferrari experience -- seems to be the way a lot of folks find their way into the club) that falls right in the sweet spot between daily driver and garage queen, that's had all the requisite maintenance (or a price that reflects the lack thereof) and seems to be generally cared for and a good fit. And after all that she's got to pass a PPI as well

I'm learning quickly that this is a process that can't be rushed. Perhaps the lesson I'm supposed to learn here is patience.... While I'm hoping the right car will present herself very soon, if it takes much longer I'm probably going to wait till spring. Makes no sense to me to buy a toy that's got to sit in the garage for 4 months before I can use it -- talk about self abuse!

In any case, I hope to meet as many other New England F-Car owners as I can at the variety of events and rides that happen during the year (I would have loved to have gone on Newport Run '05! That sounds like a blast!).

All right... I have to go get something done around here besides looking at Ferraris online... Good night all!

Chris

 

Very well said.