How does vehicle recapture work taxwise?

by Anthony R. Deutsch, CPA | Dec 12, 2018

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.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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