Dear Guru,

We had a good year in the business, and with no other equally plain and speedy remedy, have utilized the section 179 business equipment section to shed some excess income. We have purchased a good, but big, vehicle for business use. It burns a bunch of gasoline, and though it is a perfectly good vehicle in all other respects (Lexus), it is not at all fuel efficient. How long do we have to keep this vehicle? Does the IRS care?

A:

If you have a profitable business, you really should have a personal tax pro who can advise you.

In regard to disposing of your gas guzzler, the issue isn't how long you own it. If you deducted its full cost under Section 179, it now has an adjusted cost basis (aka book value) of zero. Whatever you sell it for, at any time, anything you receive for it will be taxed as ordinary income as depreciation recapture.

There is a way around this. If you trade the vehicle in on a new one valued at least as much as this one is worth, and don't receive any money back, you can roll the gain over into the new replacement vehicle. This would be a Section 1031 tax deferred like kind exchange, reported on Form 8824.

Good luck.

Kerry Kerstetter

Labels: 1031, 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/11/2004 05:48:00 PM Send this post: