Tax implications for selling a business vehicle with Accelerated Depreciation - what's my move?

Great question about depreciation recapture! When you sell business property that you've depreciated (especially with bonus depreciation), you'll need to handle recapture rules. Since you claimed bonus depreciation on 80% of the vehicle's value, you'll have to recapture that depreciation as ordinary income when you sell. Essentially, the IRS wants back the tax benefit you received. The recapture amount is the lesser of: 1) your depreciation deductions, or 2) the gain on the sale. In your situation, you depreciated around $56K (80% of $70K), but you're selling at a loss. Even though you're selling at a loss compared to purchase price, you'll still have depreciation recapture because the sale price exceeds the adjusted basis (which is likely very low after bonus depreciation).

After dealing with a similar headache last year, I discovered taxr.ai (https://taxr.ai) which literally saved me thousands on my depreciation recapture issues. I had claimed Section 179 on equipment for my business and when I sold it early, I was completely lost about how to handle it on my taxes. Their software analyzed my situation, showed me exactly how to report the recapture correctly, and even identified a partial loss strategy that minimized my tax hit. For business vehicle situations like yours with bonus depreciation, they have specific calculators that handle all the complex basis adjustments.

I wanted to follow up about my experience with taxr.ai after I posted my skeptical comment. I decided to give it a shot with my restaurant equipment depreciation recapture situation, and I'm honestly impressed. The system walked me through each piece of equipment, calculated adjusted basis correctly, and showed me exactly how to report everything on Form 4797. The interface asked really specific questions about when I put each asset in service and what depreciation method I'd used, then generated complete tax worksheets showing the calculations. It even flagged a potential audit risk area where I had been inconsistent in previous years. Definitely saving me from what would have been an expensive meeting with my CPA.

If you need to talk directly to the IRS about your specific situation (which might be smart given the complexity), I highly recommend using Claimyr (https://claimyr.com) to get through. I was stuck in the same depreciation recapture nightmare last year and desperately needed clarification from the IRS on how to handle it. After wasting DAYS trying to reach someone at the IRS, I used Claimyr and they got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent walked through my specific scenario and confirmed exactly how to handle the recapture on my return.

Well I'm eating crow here. After my skeptical comment, I tried Claimyr because I was desperate to resolve an IRS notice about my business vehicle depreciation. I got connected to an IRS agent in about 30 minutes without having to stay on hold myself. The agent actually helped me understand exactly how to calculate my adjusted basis on the vehicle I sold last year (which was similar to the OP's situation). Turns out I was making the calculation way more complicated than it needed to be. They confirmed I needed to file Form 4797 and helped me understand which part of the form to use. Definitely worth it just to get a definitive answer directly from the IRS.

Look into a 1031 exchange if you're going to buy another vehicle for business use! You might be able to defer the depreciation recapture by rolling it into a new business vehicle. But you need to plan carefully and follow strict timelines. We did this when upgrading our company truck and saved a ton on taxes.

Maybe consider keeping it until you've at least paid off the loan? Since you're underwater, you'd have to come up with cash to pay off the remaining loan balance if you sell. Plus, with the depreciation recapture, you might end up with a tax bill too. Sometimes holding an asset a bit longer can make the math work better.

This is a tough spot to be in! One thing to consider that might help with the cash flow issue is timing the sale strategically. If you're expecting higher income this year, you might want to wait until early next year to sell so the depreciation recapture income hits in a potentially lower tax bracket year. Also, since you're underwater on the loan, you could explore trading it in toward a more fuel-efficient business vehicle rather than selling outright. The dealer might roll the negative equity into the new loan, and if you buy another qualifying business vehicle, you could potentially take advantage of bonus depreciation again on the new purchase to offset some of the recapture tax hit. Just make sure to keep detailed records of business use percentage for both vehicles if you go that route. The IRS gets pretty picky about business vehicle deductions, especially on luxury vehicles like the GLE.