How does depreciation recapture work on trade-in machinery to purchase more expensive machinery?

[Jayd123]

This is the first time I've sold machinery. I traded in a tractor that was purchased for 115,000. I fully depreciated it the first year. I traded it in 2 years later for 95,500 as a down payment on a 188,500 tractor with the remainder financed yearly.

Also like to know how this will affect my income for the year.

Thank you for any insights,

Jay

[Mike9241]

indicate that the old tractor was sold for $95,000. This will result in 1245 recapture (ordinary income) of the same amount. Like-kind exchanges are no longer allowed for other than 1031 real estate exchanges. Your basis for the new tractor is the $188,000+ you paid (the trade-in value) + the principal amount financed. you can use section 179 or 168k (special depreciation)