Recapture option?

[Carey50]

We are dissolving our husband and wife llc. We have a truck fully depreciated that we want to convert to personal use. It was used 100% for business. We would rather pay taxes now instead of recapture sometime in the future if we ever sell it. We are too far "post retirement" to be buying and selling vehicles. 

[DianeW777]

Paying any tax now is dependent on a number of factors. The key is the tax reporting requirement in your situation.  The tax law may or may not be reflected in the current tax year based on some key elements.

The number of years the truck was used for business is the determining factor. Factors that make the difference in reporting any gain or recapture currently are:

1. Purchase date and/or date placed in service (should be the same since it was 100% business use)
2. New or used
3. Cost
4. Was the standard mileage rate or actual expenses used
5. If it was 100% business use, this assumes there were no personal miles used on this truck at all during the business use period. 
6. Was the Section 179 used on this vehicle when it was placed in service (first day you began using this for business purposes)
7. What was the original recovery period,  (useful life) on the first tax return for this truck

If the recovery period has expired (assuming 5 year recovery), then there is no recapture on the date of conversion to personal use. If the recovery period has not yet been met, then recapture is required now ONLY if Section 179 was utilized in the year placed in service.

• What is Section 179 Recapture?
• Answer the questions about your truck in the vehicle section and TurboTax will handle it properly if applicable.

If not, tax return reporting is required when the truck is fully disposed of, either by sale or by trade or if junked. You can continue to use the truck and do not have to be concerned until one of those situations happen.  At that time it's a very easy entry on your tax return and you do not have to be in business to handle that transaction.

[Opus 17]

Unless you used section 179 and you are still inside the recovery period, you can't just choose to pay recapture now.  You have to sell the truck to create a realized gain or loss.  If the truck's adjusted cost basis is zero, then any sale will result in a gain, but gains aren't speculative, they must be realized by disposing of the truck in some concrete manner.

[Anonymous_]

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@Carey50  wrote:

We are too far "post retirement" to be buying and selling vehicles. 

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I dislike raising morbidity, but if you hold the truck until you both pass, whoever succeeds to ownership of the vehicle will take the truck at its fair market value on the date of the last to die and previous depreciation deductions will simply disappear (i.e., no recapture).

Also, if you gift the vehicle to another party (receiving nothing in return) or junk the vehicle for $0, there will be no recapture for you in either of those scenarios.

[Opus 17]

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@Anonymous_ wrote:

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Also, if you gift the vehicle to another party (receiving nothing in return) or junk the vehicle for $0, there will be no recapture for you in either of those scenarios.

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With the caveat that the recipient of the gift will have a zero cost basis in the truck, so if they ever sell it, they will have to pay recapture on any gains.  (Of course, that's on the honor system, because the IRS doesn't track ownership of specific vehicles.)

I suspect you might have children or grandchildren who could use a truck if you can't.  (Although I wouldn't want my father's truck, it gets lousy gas mileage.  I'm sure my nephews would drool over it, though.)

[Carey50]

Thank you!