S-corp depreciation of vehicle received after divorce

[scotsman1000]

Can anyone advise here?

1) Vehicle used 80% for s-corp business purposes.

2) Actual expenses reimbursed under an accountable plan and adjusted by a usage percentage

3) Placed in service 1/1/2018

4) Original ownership was my wife

5) In mid-2019 the title transferred to me personally under terms of the divorce

How should I handle depreciation here? Does the change in title matter (i.e. is it counted as a purchase?)

I did not claim any depreciation in 2018.

[KarenM90]

Because the vehicle was not an asset of the corporation, no depreciation would be reported by the S Corp.  The S Corp would only report an expense for the mileage reimbursement amounts.

Your personal basis of the vehicle received in the divorce would have the same "adjusted basis"  equal to the original cost basis, less the applicable depreciation equivalent, based on the business mileage, for the year(s) it was used for business.  .  Please see page 24 of  IRS Publication 463 for that rate for 2018.  The rate remained the same (@ .25 per mile) for 2019.  

Pub 463 Auto and Travel 2018

In the case of a divorce, the transfer of the title has no federal tax consequences.  (There may be state consequences depending on the community property or other laws in the state where you live.)

Please see this link for IRS publication No 504.  Please note the detailed descriptions on page 21 under Tax Treatment and Basis of Property Received:

Info for Divorced and Separated Individuals

[scotsman1000]

Thank you.

From https://www.irs.gov/taxtopics/tc510 :

"Actual Expenses - To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that's business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles."

I have been reimbursing actual expenses under an accountable plan. The description above appears to include depreciation?

[KarenM90]

Yes!  Reimbursing Actual expenses was fine! 

I addressed the depreciation because you asked in your original question how to handle depreciation.  

The corporation does not need to recognize depreciation because it was not a corporate vehicle.

Your basis is reduced by a "Depreciation Equivalent"  which is simply a calculation using mileage x an IRS pre-determined rate for the time period(s) the vehicle was being used for business.

[scotsman1000]

OK not sure if I totally follow. Can the S-corp re-imburse the depreciation equivalent in addition to the actual expenses under the accountable plan? This in turn reduces the basis on the vehicle?

[KarenM90]

No.  The transaction with the corporation was handled correctly.  Under the Accountable Plan all of the business use was already reimbursed in full.

There was no depreciation taken because this vehicle was not owned by the corporation. However, the reduction in basis would have been handled in a similar manner if the vehicle had been owned by the corporation, depreciated, then transferred to you, with a reduced basis because of the depreciation.

You are reducing your personal basis because of the business use of the vehicle.

The reduction in basis for you will not have any tax consequence until the vehicle is sold.  At that time you will have a lower basis in the vehicle because it was used for business for a period of time.  

[scotsman1000]

OK got it thank you so much for clarifying!