Depreciated Personal Vehicle Used for Business

[mudtech61]

Have a small LLC that is gasping for air and on the verge of closing. I have a vehicle that was purchased for 100% business use and has been depreciated on the tax each year for the past 5 years. The LLC has had zero income since September of 2023. The vehicle is titled in my personal name and the loan for it is also in my name. The original cost was approximately 50K and approximately 37K is owed on the note. 

The average retail value of the vehicle is $37,000 and I have been offered $29,500 for the vehicle and, because the business is on the verge of closing, I am considering taking the offer. It would seem that, after an RV is more than 10 years old, it is difficult to sell as financing is difficult to obtain. 

So, my question is, it the vehicle has been used 100% for business and has been depreciated out, what are the tax repercussions going to be considering I am going to have to pay 37K to clear the title and sell for a loss of almost 20K from the original sales price and $7500 when considering the book value vs the cash offer to purchase. Thanks.

Mudbug 61

[AmeliesUncle]

---

@mudtech61 wrote:

So, my question is, it the vehicle has been used 100% for business and has been depreciated out, what are the tax repercussions going to be

---

If it has been fully depreciated, the tax-Basis is $0.  That means selling it for $29,500 will result in $29,500 of income (taxed at your regular tax rates for Federal and State).

[mudtech61]

OK, so if the full depreciation for the vehicle was taken in the year purchased and the vehicle was sold for $29,000 (even though this was a loss in comparison to the purchase price) there would be 100% tax owed for the sales amount? Even though this was a personal asset and it was not owned by the business?

Thanks for your reply.

Mudbug61

[AmeliesUncle]

Yes.

[mudtech61]

AmeliesUncle,

Thanks for your reply, that was short and to the point. 

I will need to see about amending my 2023 return as I sold a vehicle in the fall of that year and, because it was not a business asset and sold at a loss, I thought the tax would be a wash or at least a non-issue. Nieve, I know but any other advice you might be willing to offer to get straight on this tax issue? Thanks.

Mudbug61

[AmeliesUncle · Accepted solution]

---

@mudtech61 wrote:

because it was not a business asset and sold at a loss,

any other advice you might be willing to offer to get straight on this tax issue?

---

If it was used for business and depreciated for business, it is a business asset (even if the title was in your name).  You said an LLC - is this a Single Member LLC that has NOT made an election to be taxed as a corporation (so it is filed on Schedule C)?

If the business percentage varied from year to year, TurboTax is not set up to report that, and manually reporting it can be a major headache, so in most cases I would recommend going to a tax professional.  If it was always 100% business use, it is pretty straightforward to report in the Vehicle section of TurboTax.

[mudtech61]

Hate to abuse your willingness to answer my questions but here is a follow up that I am hoping you can give me additional information on.

The vehicle, which I thought was NOT a business asset since it was titled and the note for it was in my personal name and not the name of the LLC (S-Corp Provision) was paid off by me from personal funds (as I thought it was a personal asset) so the sales proceeds was actually $6,575.28 less than the pay off amount to clear the title. If this is the case, can I amend the return to show the vehicle paid off ($37K) and then sold for $29,500 at a loss? The actual loss is more like $20500 as the sell price was $50,000. I am sure that I will need to get a tax professional to get this all straight but I am trying to avoid entanglement with the IRS. Thanks.

Mudbug

[AmeliesUncle]

---

@mudtech61 wrote:

The vehicle, which I thought was NOT a business asset since it was titled and the note for it was in my personal name and not the name of the LLC (S-Corp Provision)

can I amend the return to show the vehicle paid off ($37K) 

The LLC is taxed as an S-corporation?  When you say it was fully depreciated, do you mean the S-corporation reimbursed you personally via an Accountable Plan?  The S-corporation can't depreciate something it doesn't own, but it can reimburse via an Accountable Plan.

Paying off a loan is not a deduction.

[mudtech61]

Yes, the LLC is taxed as an S-Corp and a form 1120-S was filed for the tax years since 2010.

I say that the vehicle was depreciated because the CPA who did the tax at that time depreciated the full amount of the vehicle purchase in the year the vehicle was bought and made available for the 100% use of the LLC in work/revenue generating activities. I did not receive any reimbursement from the LLC for the vehicle and the allowed expenses for the vehicle were deducted for the tax year as allowed by the IRS. 

Now, that's the way I understand it. Keep in mind I am not a tax professional, but I believe that the CPA depreciated the vehicle under the mistaken assumption that it was titled in the LLC name and the note was also and it was therefore a business asset. The title, note and registration were all in my name and (I think) it would have been impossible for me to legally sell the vehicle as a private individual if the title was not in my name.

Sorry to be so long winded but does this answer your question?

Mudbug

[AmeliesUncle]

Now we are getting into gray areas that you should talk to a tax professional.

Personally, I would lean towards treating it as if you had contributed the vehicle to the corporation, even though the title was not transferred, and therefore keep everything (including the sale of the vehicle) on the corporate return.  But that is a gray area.