@STC3 wrote:
does anyone know, ( I used my SUV for section 179 deduction and now the car's company want to buy back my SUV due to lemon law, what should I do now for last year (2021) tax deduction? will I need to pay back all the deduction amounts? that is over 25K payment to IRS.
I got the SUV for 89k and after 11 months of usage and the car company they want to buy back at full price 85K,,, I told them this is not a personal use SUV, is for business use. and they told me the max is 85K for buy back and + 20K for additional damage, total is 105k,,,, I know I need to pay the 20k as 1099 income, but the bottom line is my 2021 tax deduction are using 100% section 179 which is 89k,,,,,,,,what can I do by the end of the year for other over 6000lbs vehicle add back to 2021 tax return? or I have to pay back the IRS on the deduction that I got from 2021?
This is a duplicate question that was already answered.
If you purchased a vehicle in 2021 and placed it in service as a business vehicle under section 179, and then sell it in 2022, you will have to recapture the unused depreciation. Turbotax will do this for you. Yes, you will have a taxable gain. You will list the vehicle as "sold" for the amount of the settlement (it doesn't matter why it was sold, just the date and the price). Turbotax will do the rest. You don't amend your 2021 return.
The 20k is not "1099 income" or "other income." Since this is a business vehicle, the 20K will be business profit. You simply list the vehicle as "sold" for the $105K that you get. If you had legal expenses, you can deduct them as a business expense. If you paid for repairs, you can deduct them as vehicle expenses. Whatever is left over will be taxable income to the business on your schedule C.
For example, if you took section 179 in 2021, you deducted the entire price, so your adjusted cost basis is zero. In 2022, you received $105K of business income when you sold the vehicle. You would be allowed about $17K of depreciation for 1 year of business use, so you will have a taxable gain of about $88K. If you had $20K of expenses, you can deduct them, but if your "expenses" are just lost business opportunities/lost profits, there is nothing to deduct. You can't deduct a loss from money you never received, and if the 20K is replacement for lost business income, then it is taxed as if it was business income.
