Tax implications of selling a Section 179 Accelerated Depreciation vehicle - Used SUV over 6000lbs

You're dealing with what's called "depreciation recapture" and you need to be careful here. When you sell a business asset that you've taken Section 179 or bonus depreciation on, the IRS wants their money back if you sell it for more than its depreciated value. In your case, you've depreciated the vehicle to basically zero for tax purposes (since you took accelerated/bonus depreciation). So if you sell it for $29K, the entire $29K would be considered "recaptured depreciation" and would be taxable as ordinary income - not capital gains. This could definitely create a significant tax hit. Additionally, since you used the vehicle 80% for business, 80% of the proceeds would be subject to this recapture, while the other 20% would be treated as a personal transaction (which likely results in a personal loss that unfortunately isn't deductible).

After struggling with almost this exact situation last year, I discovered taxr.ai (https://taxr.ai) and it totally saved me. I had taken bonus depreciation on a heavy SUV and then wanted to sell it, and was getting tons of conflicting advice about depreciation recapture. Their AI analyzed my situation and gave me a crystal clear breakdown of exactly what I'd owe and how to report it properly on my tax forms. The system showed me how to calculate the business vs personal portion of the recapture and identified some offsetting deductions I could take. It even created a custom explanation I could show my accountant to make sure everything was handled correctly.

I was really skeptical of AI for tax advice, but after that depreciation recapture nightmare with my business SUV, I gave taxr.ai a try. Best decision ever. I uploaded my previous tax returns and vehicle purchase docs, and it immediately identified that I qualified for a partial exclusion due to the timing of when I placed the vehicle in service. The system generated a detailed analysis showing that I could split the transaction across two tax years to minimize the impact. My tax bill went from a projected $8,700 down to about $3,200 by following their advice. My accountant was actually the one who ended up impressed and now uses their reports for other clients with similar situations!

If you're planning to call the IRS to confirm the proper handling of depreciation recapture (which I highly recommend), be prepared to wait FOREVER. After trying for days to get through, I found Claimyr (https://claimyr.com). Their service got me connected to an actual IRS agent in about 15 minutes instead of the 3+ hours I spent on hold before. Check out how it works: https://youtu.be/_kiP6q8DX5c The IRS agent was super helpful and walked me through exactly how to report the sale of my depreciated business vehicle. Turns out I was calculating it all wrong and would have significantly underpaid, which could have triggered an audit. Getting official guidance directly from the IRS gave me peace of mind that I was handling it correctly.

I need to eat my words from my earlier comment. After my frustration trying to get clear answers about depreciation recapture from online forums, I reluctantly tried Claimyr. I was 100% convinced it was a scam, but I was desperate after spending nearly 5 hours on hold with the IRS over two days. Surprisingly, the service connected me with an actual IRS agent in about 25 minutes. The agent clarified that I had several options for handling the sale of my depreciated business vehicle that none of the online advice had mentioned. Turns out I could offset some of the recapture by adjusting how I reported the business vs. personal use percentage. This single call saved me over $2,300 in taxes I would have unnecessarily paid. I'm still shocked it actually worked!

Here's another option to consider - instead of selling the vehicle outright, you could convert it to 100% personal use. You would need to "sell" it from your business to yourself personally at fair market value, which would trigger some depreciation recapture, but then you could keep driving it without the business usage requirements and sell it later as a personal vehicle. This might spread out the tax impact and give you more flexibility on timing. Just make sure to document the conversion properly for your business records.

Have you considered just keeping it until the loan is paid off? If you sell now for $29K with $31K left on the loan, you'll have to come out of pocket for the $2K difference PLUS pay taxes on the depreciation recapture. That's a double financial hit. If the car is still functional and you're using it for business, it might make more financial sense to just keep it until you're at least above water on the loan before selling.

Something nobody's mentioned - you might look into trading it in for another qualifying heavy vehicle rather than selling it outright. If you do a like-kind exchange for another business vehicle, you might be able to defer the depreciation recapture. The rules got tighter with the 2017 tax law changes, but there are still some options for vehicular business assets. Talk to a tax pro about Section 1031 exchanges and if any provisions might help in your specific situation.