What happens when selling a Section 179 vehicle in the 3rd year of Uber driving?

Hey everyone, Back in 2021, I purchased a brand new Tesla for about $65k to drive for Lyft. I took advantage of the Section 179 deduction for approximately $25k of that amount. On my tax returns for 2021 and 2022, I reported my usage as roughly 75% business and 25% personal. I've decided to stop driving for Lyft this year, and I'm trying to prepare for what I think will be depreciation recapture somewhere around $5k = $25k - ($65k * 0.20 straight line * 2yrs * .75 usage). I'm wondering - if I sell the car now, could I avoid having to deal with this depreciation recapture? My Tesla is only worth about $27k now because it got damaged in a fender bender and EVs lose value so quickly. If I sold it now, would I be able to include the additional depreciation instead of dealing with the recapture? Thanks in advance for any advice!

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18 comments

Emma Morales

•8M

The short answer is no, you can't avoid depreciation recapture by selling the vehicle. When you sell a Section 179 vehicle, you'll need to report the sale and potentially pay taxes on the recaptured depreciation regardless. When you sell the vehicle, you'll compare your sales price to your adjusted basis. Since you took the Section 179 deduction, your adjusted basis is essentially the original purchase price minus the business portion of the Section 179 deduction you took. In your case, it sounds like you'll actually have a loss on the sale based on your numbers. This loss would offset some of the recapture tax, but you'll still need to handle the recapture calculations on Form 4797. The good news is that if your sales price is lower than the adjusted basis, this can reduce the amount of recapture you'll owe. I'd recommend working with a tax professional on this specific scenario since Section 179 recapture can get complicated, especially with mixed business/personal use.

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Emma Morales

•8M

Yes, selling at a loss can help reduce the overall tax impact compared to just stopping business use. The loss on sale can offset some of the recapture amount, potentially resulting in a lower tax liability than simply switching to 100% personal use. The five-year period you're thinking of relates to the recovery period for the property. With Section 179 property, if business use drops below 50% during the recovery period (which is typically 5 years for vehicles), you'll need to recapture a portion of the deduction. However, when selling the property, you're essentially ending its business use entirely, so you'll still need to calculate the recapture regardless of how many years you've owned it.

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Lucas Parker

•8M

I ran into a similar situation last year and was pulling my hair out trying to figure out all the Section 179 rules. After hours of research and frustration, I discovered https://taxr.ai and it was a game-changer! I uploaded my previous tax returns, vehicle purchase docs, and some basic info about my business use percentages. The AI analyzed everything and walked me through exactly how to handle the depreciation recapture for my rideshare vehicle. It even showed me how to minimize the tax impact by timing the sale strategically. The step-by-step guidance for Form 4797 was super helpful since that form is seriously confusing. Definitely worth checking out if you're dealing with this complicated Section 179 situation!

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Lucas Parker

•8M

It absolutely handles complex situations like Section 179 recapture. Unlike general tax software, it's specifically designed to analyze documents and provide tailored guidance. It caught several small details in my situation that would have resulted in overpaying taxes. The main difference from TurboTax is that it's not just filling in forms - it actually analyzes your specific situation and documents, then provides personalized explanations. I still filed through my regular tax software, but used the guidance from taxr.ai to know exactly what numbers to put where and why. It saved me from hiring a CPA which would have cost much more, especially for this one specific issue with my vehicle.

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Harper Collins

•8M

Wanted to follow up - I was really skeptical about taxr.ai but decided to give it a try since my Section 179 vehicle situation was almost identical (quit Uber after 2 years, took big deduction on an EV that's now worth way less). I'm genuinely surprised at how helpful it was. It analyzed my previous Schedule C and vehicle docs, then showed me exactly how to calculate my adjusted basis with the business/personal split. It even explained which sections of Form 4797 I needed to complete and what would happen tax-wise if I sold now vs. next year. Turns out selling now actually works better in my case because the loss on sale partially offsets the recapture tax. Saved me a bunch compared to what I was planning!

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Kelsey Hawkins

•8M

I had a similar Section 179 issue last year and spent WEEKS trying to get through to the IRS for clarification. Kept getting disconnected or waiting for hours only to get someone who couldn't answer my specific question about business/personal use splits with recapture. Finally found https://claimyr.com and was connected to an actual IRS agent in about 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS for you and call when an agent picks up. The agent was able to confirm exactly how to handle the Section 179 recapture with my mixed-use vehicle and even emailed me the specific publication sections that applied to my situation.

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Kelsey Hawkins

•8M

They don't skip the line - they literally wait on hold for you so you don't have to. You tell them what department you need to reach, and they call the IRS and wait in the queue. When an agent finally answers, they connect you directly to that agent. You explain your specific questions yourself. No, they don't know your questions in advance - they're just a hold service. It's like having someone else sit on hold for hours while you go about your day. I was skeptical too, but when they called me back, I was connected to a real IRS agent who answered my Section 179 questions. I probably saved 3+ hours of hold time.

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Edwards Hugo

•8M

I have to eat my words. After dismissing the Claimyr thing as a scam, I was still desperate to get answers about my Section 179 vehicle situation before filing, so I tried it as a last resort. They actually did exactly what they promised. I put in my request around 9am, went about my morning, and got a call around 11:30am saying they had an IRS agent on the line. The agent walked me through exactly how to calculate my recapture with mixed business/personal use and confirmed I was handling Form 4797 correctly. Just wanted to follow up since I was so skeptical. Definitely beats the 3+ hours I spent on hold last time only to get disconnected.

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Gianna Scott

•8M

Something important nobody's mentioned yet - the timing of when you sell matters for Section 179! If you sell in the same tax year that you stop using it for business, the calculations are different than if you switch to personal use in one year and then sell in a later year. Also, don't forget the EV tax credit angle. If you claimed the EV credit when you purchased, and you sell within 3 years, you might have to recapture part of that credit too! It's something like $7,500 × (36 - months held)/36.

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Gianna Scott

•8M

The EV credit recapture is separate from the Section 179 recapture, so yes, it still applies even if you took Section 179 instead of regular depreciation. The IRS treats these as completely separate tax benefits. The business/personal split doesn't directly affect the EV credit recapture calculation. The EV credit recapture is simply based on the full original credit amount and how long you owned the vehicle. So if you received a $7,500 credit and sell after 24 months, you'd recapture $7,500 × (36-24)/36 = $2,500, regardless of business use percentage.

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