How does vehicle recapture work? If I purchase a vehicle and deduct the full amount ($70,000) under Section 179, and then I sell it in three years for $35,000, how much am I recapturing? Is it as if I just made an extra $35,000 that year? Or is there a table, and I only recapture part of it?
The general rule is that when an asset is written off using Internal Revenue Code Section 179, the tax basis in that asset is now zero. Assuming the business deducted 100 percent of the 179 expense, then, based on the facts provided, there is a gain on the sale of $35,000, all of which is recapture income taxed at ordinary tax rates.
Note: If the entity that owned the asset is a pass-through entity, the answer could be different for each of the partners/S corporation shareholders.
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Answered by: Anthony R. Deutsch, CPA, is a shareholder with Concannon, Miller & Co. PC in Bethlehem, Pa.