Recapture Depreciation on Closed Business

[sanjeevnarula]

I report my LLC on Sch C. I closed my business in 2023. As for the car i was claiming 60% as business use and I am not selling the car and it will be now 100% personal use. How do we treat this on my tax return, does the car stay on my return until it's disposed and then I recapture the depreciation or should we report as disposed using FMV and recapture the depreciation in 2023? Thanks for the help

[DianeW777]

No, you do not report it as being sold until it is actually sold or traded.  At that time you will handle the depreciation recapture which will be a tax event unless it is junked.  Be sure to keep a record of your vehicle information with your tax files until you no longer have it.

Use the information here in TurboTax to handle this conversion to personal use.

• When you are in the vehicle information in your business be sure to select 'Sold, disposed of, etc....' then do not indicate it was sold.  You must say 'Yes' it was converted to personal use.  This will eliminate any sales information in the vehicle it self and will likely remove it from your return for next year.  That's all right since you will have the records when and if you trade or sell it. 

Note: A trade for the IRS is considered a sale at the trade-in value.

[AmeliesUncle]

How were you depreciating the vehicle? 

Standard Mileage Rate?  Straight-Line depreciation?  Accelerated depreciation (Bonus depreciation, Section 179 or 200%DB)?

That will determine if you need to do any recapture now or not.

[sanjeevnarula]

Sorry for the late reply, It's currently depreciated using SL 5 years.

[AmeliesUncle]

For Straight Line depreciation, then as the other answer said, there is no recapture until it is sold.

[sanjeevnarula]

Thanks a lot, appreciate the help

[crash345u]

What if the car is sold many years after the straight line appreciation time is finished? is there still recapture? The way I read this, you are  putting the recapture "oh hold" .

How would this change if it was originally a Section 179 deduction?

[Vanessa A]

No.  If you took the Section 179 deduction 10 years ago on your car that you just sold, the car would be fully depreciated and no longer have value. 

 However, this means, if you sold the car for $10,000 and you fully depreciated it 10 years ago, then you would have a $10,000 gain on the sale since the value of the car is $0.