Q:

Hi,

Was perusing your site and saw the wealth of information you provide.  Clarifying question I did not find referenced:

If you purchase a qualifying vehicle (6,000 LB+ SUV) and take the $25K deduction in 2005 (regardless of if the vehicle is financed), can you sell that vehicle in ’06, purchase another qualifying vehicle, can you take another $25K deduction in ’06 (assuming the guidelines and limits remain unchanged)?  My question is, if the guidelines for weight and maximum allowable deduction remained the same for the next five years, could you sell your vehicle annually, replace it with another qualifying vehicle annually, and take an annual 179 deduction each year?

Thanks for any insight you can offer.

Regards,

A:

You can buy new vehicles each year and claim the Section 179 for them, as long as each one meets the weight and over 50% business usage tests. 

If you sell the previously deducted vehicles, you need to report the sales on Form 4797 and show anything that you get for it above its depreciated book value as depreciation recapture ordinary income.   A sale only makes sense tax wise if the price you can get for it is less than the adjusted depreciated book value, so that you can claim the loss on Form 4797.

If you trade the old vehicles in on new ones, you will avoid having to report the gain because that will be rolled over into the new replacement vehicle on Form 8824.  In regard to them claiming Section 179 deductions on the new replacement vehicles, you will only be able to do so on the additional amounts paid for the new vehicles after the trade-in allowance.  To count the full cost before adjusting for the trade-in would be effectively double-dipping.

This is why it's so important to keep tabs on the depreciation schedule for your business vehicles and why I am so upset when I hear that tax pros are not providing their clients with detailed depreciation schedules with their tax returns for both the year being prepared, as well as the following year.  Most tax prep programs will print out both years' schedules automatically.  To not provide clients with those detailed schedules is wrong.

Good luck.  I hope this helps.  Your personal tax pro should be able to give you more specific advice for your circumstances.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/10/2005 01:59:00 PM Send this post: