Problems with Section 179 when vehicle was traded for another

[golfgirl13]

In 2021, I purchased a vehicle for my business.  The purchase price was 36,000.  I took 11,000 section 179 on it in 2021. In 2022, I traded that vehicle in on another business vehicle whose purchase price was 44, 500.  I received 35,200 for the one I traded. Turbo Tax is showing some sort of huge Gain on the sale of the 2021 vehicle and not allowing any Section 179 on the new vehicle. It only wants to allow me to take a Special Depreciation Allowance that creates a huge loss on my Schedule C. Help!

[leeloo · Accepted solution]

You do have a huge gain on the previous vehicle. This is the danger of Section 179. The life of the vehicle is 5 years but you sold it before its useful life was over.  Now,  you have to recapture a big chunk of that $11,000 and that amount is taxable.

Make sure you fully complete the sale of the first vehicle before entering any information for the new one. It is a sale for IRS purposes as there is no longer a like kind exchange for vehicles. 

[Mike9241]

not sure what you are doing.  but like-kind exchanges only apply to certain real estate.

the proper reporting is to indicate the old vehicle was sold for the trade-in value.  as explained depreciation is recomputed as if no 179 and/or special depreciation was taken. the difference is income reduced by the difference between the purchase and selling price.   then you enter the cost of the new vehicle as a new asset which should allow either or both 179 or special depreciation.  not hold the new vehicle for a full 5 years and you will again have recapture. 

in most software special depreciation is automatic. there is an option to elect out for all 5-year class properties.