Sale and Recapture

[Snaggletooth]

Contractor (proprietor, Sch C) purchased Work Van. Not listed property, as van was modeled to support work with no practical way to support personal use (especially with 5 other vehicles).

Original Basis only $8000, and became fully depreciated over the years. Two years ago, contractor retired, and now physically unable to perform work or supervisor duties. Van is still owned and maintained by owner but basically just sits there.

Van could be sold for $4500 today. I have told him all of the proceeds would be taxable under recapture rules. He is incensed, and believes since he is retired the sale should not be taxable. However, I told him he could trade it in on a personal van or truck, and under trade-in rules, the proceeds would simply reduce the basis of the personal vehicle and thus not be taxable. The basis of a personal vehicle would likely never come into play.

So he bails out, right??

[ChEAr$]

I don't think so.


Business use drops to below 100%, therefore recapture is inevitable.

[Snaggletooth]

Observation

Business use drops to below 100%, therefore recapture is inevitable.

No question about it dropping below 100%, however Van was not listed property to begin with. Designed and equipped such that it could not practically be used for personal purposes.

Does this make any difference?

[Gretel]

If not listed property recapture rules don't apply unless Sec. 179 was taken. If listed property and conversion to personal property occurs depreciation must only be recaptured if vehicle is still within ADS recovery period. See also TTB 9-16 (1040).

If no Sec. 179 was taken it seems you are home free.

[veritas]

No like kind exchange

However, I told him he could trade it in on a personal van or truck, and under trade-in rules, the proceeds would simply reduce the basis of the personal vehicle and thus not be taxable. The basis of a personal vehicle would likely never come into play.

So he bails out, right??

for non business property. That won't work.

[Gary2]

If not listed property recapture rules don't apply unless Sec. 179 was taken. If listed property and conversion to personal property occurs depreciation must only be recaptured if vehicle is still within ADS recovery period. See also TTB 9-16 (1040).

If no Sec. 179 was taken it seems you are home free.

There may not be any recapture problems at the time it's converted to personal use, but doesn't it still have a zero basis and 1245 recapture when it's sold?

[Snaggletooth]

Not Sold

In the original post, the Van is traded.

It is admittedly subject to recapture if sold.

[Kram BergGold]

Taxable

I posted this 3 years ago and I believe Bees Knees said you treat the trade as a sale if the new property is 100% non business..

[Burke]

It makes sense to treat the trade as a sale. It should be viewed as a disposition of fully depreciated business property, IMO.