Auto Deduction

[RLymanC]

Taxpayer bought an $18,000 vehicle for 90% business use. Has a qualified office in home and drives 4 miles a day round trip business miles. No problem, depreciate auto and use actual expenses, no Sec. 179.

Question: Before the end of the year the taxpayer moves 30 miles from her self employment job location, still with qualified office in home. Can she, on Jan. 1st of the next tax year stop the depreciation on her first car, and use the mileage method by using a different vehicle?

[JG EA]

The car stand alone

Each vehicle can be taken separately as to which method to use. However, since the first car was converted to personal use, the excess depreciation over ADS SL will have to be recaptured.

See page 58 of Pub 946 and TTB.

[cpadan]

. since the first car was converted to personal use, the excess depreciation over ADS SL will have to be recaptured..

No recapture in this situation, see Rev Rul 69-487, 1969-2 CB 165.

If on the other hand, the taxpayer was to continue using the car and the business use was less than 50%, then recapture would result per Code Sec. 280F(b)(2)(A) .

These are two seperate situations. The conversion to personal will not result in recapture until the asset is sold. RIA has an example where the taxpayer gives son a car which had been used in his business. No recapture, but the car is 1245 property to the son.

[JG EA]

Are you sure? Listed property.

Pub 946:
"Recapture of Excess Depreciation
If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. You also increase the adjusted basis of your property by the same amount.

Excess depreciation is:

The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus

The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service.

To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period."

Zero is less than 50%

P.S. Rev Rul 69-487, 1969-2 CB 165.
Did they even have listed property in 1969 when this ruling came out?

[jainen]

What they didn't have

>>Did they even have listed property in 1969 when this ruling came out?<<

What they didn't have in 1969 was MACRS, which stands for Modified ACCELERATED Cost Recovery System. Rev. Rul. 69-487 explains that conversion to personal use is not a disposition that triggers the recapture of ALL 1245 depreciation the way a sale does. However, EXCESS depreciation of listed property used less than 50% is a different matter.

[cpadan]

You guys are right, listed property. I was in another debate over business property in general and got crossed over in this one, sorry. (Actually the most current reference is Reg § 1.168(i)-4(c) )

[S T]

Retired to Personal

If vehicle is retired to personal use using MACRS, it falls below the 50% and don't we have to recapture?

Since we all rely on computer/our tax software, what do you show in the asset disposition (Lacerte,UltraTax, Drake, TaxWorks, etc) do we show -0 dollar amount for sales price and the date, and it should calculate!

Sandy