Transferring ownership of business vehicle

[Nelstax]

Hi there, maybe someone could help a novice? I hope I can explain this so that it makes sense. I have researched this situation on the IRS without finding any solid answers. I always seem to get crazy situations each and every year.

Clients have been running a driver education business for years, decided to semi-retire and give a major portion of the business to the son, which includes two still depreciable vehicles.
Since transferring the ownership was an act of donation, do I use Form 4797 and show a loss on clients' return for the vehicles or is it considered no loss - no gain for either party?
Thanks in advance for your thoughts!

[taxea]

"decided to semi-retire and give a major portion of the business to the son".

Sounds like the client still owns a portion of the business and the son has joined the business with the intention that he will be taking it over. What kind of return is filed for this business? Is there a written contract between father and son? What agreements have been made between them as to income/expenses? taxea

[Nelstax]

Transferring ownership

Hi and thank you for responding. The business was split up and each will take care of his own part. At this time, I am not certain if there were legal papers done. The son has taken over the driving and some classroom time and will be responsible for all income and expenses under a new business name. The parents kept a different type of the classroom sessions and handle income and expenses for that.
They will each file Schedule C with their personal returns. Since the vehicles were giving to the son to use, the parents could benefit from the actual loss it creates for them. I have read different rules for family related issues but I found nothing explaining what can be done or what form to use. The returns are actually fairly easy to do if not for this one particular question.

[Gretel]

My 2 cents. If you sell an asset to a related party you cannot recognize a loss, so I would think if you "sell" for zero you cannot recognize a loss either.

I would rather want to look at this transaction as withdrawing an asset for personal use, then gifting it to son (gift tax return?). Son will need to use carry over.

[AJsTax]

From TTB page 21-24. Below market sales is property transferred in part as a sale and in part as a gift. ....A loss is not deductible. (reg. S 1.1001-1(e). The buyers basis is the greater of the amount paid or the gift basis ( basis in the hand of the giftor.)
They sold business property below market value and therefor made a gift and can take no loss on the equipment. They transfer it out of the business at the remaining basis.

[Nelstax]

Transerring ownership of business vehicle

Thank you all so much for your help and have a great week!