section 179 deduction

I bought an SUV for 55,000 in 5/2010 which qualified for this deduction. in 2010

I took a $25000 deduction (use was 73% business). In 2011 I took an $11,000 deduction and in 2012 I took a $6800 deduction. i now want to trade it in and get a new pickup truck with a 6.5 foot bed. This qualifies for the section 179 deduction without the 25,000 limit the suv has.

i can deduct the full $55,000 price tag of the truck on my taxes in 2013 but what will happen with the SUV i took the original section 179 deduction on?

I know there is a recapture but I understand that I can trade up with this new truck and exchange. What do you think the new deduction in 2013 will be?

Also, when will the original 5 years be up. Is it enough to use the truck in 2010, 2011, 2012, 2013 and a month in 2014?

Answer :

1 : As you can see, while many people don’t see much difference between a vehicle trade-in and a sale,however, it can make a huge difference tax-wise. Since you have depreciated via Section 179 + normal annual depreciation, the cost basis down to an amount much lower than the vehicle’s current FMV, a sale will trigger a taxable recapture of some or all of the depreciation and Sec. 179 as sec 1245 ordinary income . If you sell, exchange, or otherwise dispose of section 179 property, you may have to treat all or part of the gain as ordinary income.BUTAs long as you trade the vehicle in for one with a value of an equal or higher amount, there will be no taxable recapture. If you trade in your old SUV for a new SUV, you have a tax free like kind exchange. Your basis for depreciation for the new SUV is $12,200. With the like kind exchange, you will not have a recapture of the Section 179 deduction , $42,800, taken on the old SUV. If you don't trade in the old SUV and sell it privately, you won't have a tax free exchange. This means potentially you could expense the new SUV under Section 179 up to $55K. You would also need to compute the gain or loss on the sale of old SUV and pay tax on the recapture of the Section 179 taken on it. The tax rate on depreciation is recapture is 25%. Unless your tax savings on the 179 deduction was based on a 25% rate or greater, you are better off doing the trade in. Per Form 8824, the remaining undepreciated cost basis of the old vehicle, $12,200, plus any additional amounts paid via cash and debt will become the cost basis of the new vehicle.In regard to claiming Section 179 on the new vehicle, the rollover cost portion,$12,200, is not eligible; but the newly paid via cash or debt amounts are. Normal deprecation is available for the amount not deducted under Sec. 179.The opposite would be the case if the vehicle is worth less than the depreciated cost basis. A sale would enable a deductible loss; while a trade would require the loss to be rolled over and added to the cost basis of the new vehicle.

You need to check the asset’s depreciated cost basis , BV, before deciding whether to trade a vehicle in or sell it in an independent transaction.

2 : As mentioned above it depends on the situation,i.e, sale/exchange or trade in or etc.. For example, if you don't trade in the old SUV and sell it privately, you won't have a tax free exchange. This means potentially you could expense the new SUV under Section 179 up to $55K, newly/fully depreciable cost for sec179. In regard to claiming Section 179 on the new vehicle, the rollover cost portion,$12,200, is not eligible; but if you paid, then, the newly paid via cash or debt amounts are.

3 : I guess it is up on the date of the trade in. To compute the holding period of the property, you begin counting on the day after the date you acquired the property and stop counting on the day that you dispose of it. If you acquire new SUV in exchange for old SUV, such as in a tax-deferred exchange, the holding period begins on the day after the date the original (or old) SUV was acquired. 

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