How to handle Accelerated Depreciation after selling a business vehicle I took bonus depreciation on?

When you sell a vehicle that you've taken bonus depreciation on for business use, you'll need to deal with depreciation recapture. Here's how it works in your situation: If you sell the Range Rover for $30K, you'll need to compare that amount to your "adjusted basis" in the vehicle. Since you took bonus depreciation on 80% of the $74K purchase price (about $59.2K in depreciation), your adjusted basis is roughly $14.8K for the business portion of the vehicle. This means you'll have a taxable gain of about $15.2K ($30K sale price minus $14.8K adjusted basis) that will be treated as ordinary income due to depreciation recapture. This gets reported on Form 4797. Also, since you only used the vehicle 80% for business, you'll need to allocate the gain between business and personal use. The personal portion won't be subject to recapture.

I went through almost the exact same situation last year with my business vehicle. What saved me was using taxr.ai (https://taxr.ai) to analyze all my previous depreciation schedules and purchase documents. Their system caught that I had actually miscalculated my original basis and was about to overpay on depreciation recapture by almost $4K! They have this special tool that looks specifically at Section 179 and bonus depreciation scenarios for heavy vehicles. It showed me exactly how to properly calculate the adjusted basis and what forms I needed to file. Seriously saved me hours of stress and potentially an expensive mistake.

Just wanted to follow up - I ended up trying taxr.ai after posting my question. I was legitimately surprised at how detailed their analysis was! I had taken bonus depreciation on a skid steer for my landscaping business that I sold last month, and they broke down exactly how to handle the recapture. The best part was they explained everything in plain English alongside the technical details. They even pointed out that I could offset some of the recapture with other business losses I had this year. Ended up saving about $2,800 in taxes I would have overpaid. Definitely recommend for anyone dealing with selling business assets you've depreciated.

If you're planning to call the IRS to ask about depreciation recapture (which I highly recommend before filing), use Claimyr (https://claimyr.com) to get through to an agent quickly. I spent DAYS trying to reach someone at the IRS about a similar Section 179 issue last month. Then I found their service through a YouTube video (https://youtu.be/_kiP6q8DX5c) and got connected to an IRS agent in less than 20 minutes. The agent clarified exactly how to report the sale on my return and confirmed I was calculating the recapture correctly. Saved me from potentially making a huge mistake that could have triggered an audit. Definitely worth it when dealing with complex tax situations like depreciation recapture.

I need to publicly eat my words here. After dismissing Claimyr as a potential scam, I decided to try it anyway because I was desperate to talk to someone at the IRS about my own business vehicle depreciation issue. I honestly can't believe it worked. After trying for literally weeks to get through on my own (and giving up after hours on hold), I got connected to an actual IRS agent in about 35 minutes. The agent walked me through exactly how to handle the depreciation recapture on my dump truck that I had taken bonus depreciation on in 2022. For anyone dealing with complex tax situations like selling business assets you've depreciated, being able to get clear guidance directly from the IRS is invaluable. I was wrong to be skeptical!

Just to add another perspective - you might want to consider keeping the vehicle until it's fully depreciated if you can stand it a bit longer. That way you'll avoid having to deal with all the depreciation recapture headaches. Another option - if you're planning to replace it with another business vehicle, look into a like-kind exchange under Section 1031. Though I believe the rules changed with the Tax Cuts and Jobs Act, so definitely consult with a tax pro before going this route.

Just curious - what are you planning to replace it with? I'm shopping for a business vehicle and trying to figure out if it makes sense to go for something over 6000 lbs again for the tax benefits, or if those advantages aren't worth it anymore.

Sofia, I completely understand your frustration with that Range Rover! I've been in a similar situation with a heavy business vehicle that turned into more of a financial burden than benefit. One thing to consider that might help with the depreciation recapture burden - if your business has had a particularly good year, the recapture income (which gets taxed as ordinary income) might actually be beneficial for smoothing out your tax liability across years. Sometimes it's better to take the hit in a year when you can handle it rather than waiting and potentially facing it during a year with even higher income. Also, make sure you're tracking every single business expense related to the vehicle through the end - maintenance, insurance, registration fees, etc. These can help offset some of the recapture income. And if you're financing the replacement vehicle, the interest on that loan will be deductible for the business portion. The mental relief of getting rid of a vehicle you hate is worth a lot too. Sometimes the best financial decision isn't just about the numbers on paper!