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Depreciation recapture sale of equipment, auto & truck

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bogwhan
Level 1

I have an issue that I am having a hard time grasping. In 2017 & prior I felt I had a strong understanding of depreciation, 179, special depreciation and the depreciation recapture & recapture tax. Now in 2018 tax preparation I have a number of questioning areas.

 My reading leads me to think if I have a depreciation recapture, particularly equipment, auto & trucks, then I should also be showing some recapture tax and adding back my recapture depreciation to my basis to calculate gain or loss on sale. I have read this issue many times and still come up with the same concerns.

I have discussed with other tax preparers, who I am confident in, about the recapture tax. They tell me to handle it on the 4797 and on Schedule D and it all works out okay – no separate recapture tax calculation – that discussion has not resolved it in my mind. Should I be concerned that I am not directly showing any recapture tax and that it does clear correctly through the 4797 and Schedule D?

 I would appreciate any comments and explanation. 

 .


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If the asset is sold (or otherwise disposed), there is nothing special to do.  As those other tax prepares said, the sale/disposal is entered on the 4797 and any recapture is calculated on that.

However, it works differently (1) if (a) Section 179 was taken on any asset and/or (b) vehicles ("Listed Property") used accelerated depreciation (not straight-line) AND (2) those vehicle dropped to 50% or less business use BUT the assets were NOT sold/disposed.  In those scenarios, that is a separate calculation for recapture (bottom of page 2 of Form 4797) which results in the "recapture" being added as income and which increases the Basis.

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All-Star

If the asset is sold (or otherwise disposed), there is nothing special to do.  As those other tax prepares said, the sale/disposal is entered on the 4797 and any recapture is calculated on that.

However, it works differently (1) if (a) Section 179 was taken on any asset and/or (b) vehicles ("Listed Property") used accelerated depreciation (not straight-line) AND (2) those vehicle dropped to 50% or less business use BUT the assets were NOT sold/disposed.  In those scenarios, that is a separate calculation for recapture (bottom of page 2 of Form 4797) which results in the "recapture" being added as income and which increases the Basis.

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bogwhan
Level 1
Thanks for your reply. Very helpful.
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All-Star

You want to Edit and Remove your phone number; this is the public internet, so you are inviting Spammers and Scammers to contact you. Also, remove your personal Email from this community forum. Using this forum means playing safely on the internet, and using this forum, not personal contact info.

In general, for what you describe as "recapture tax," I think you would have the potential for only ordinary income that would be taxed at ordinary rates. You described nothing subject to capital gain or short/long term. But I am not a CPA, so you can wait until someone else stops by 🙂  They tend to ask better questions to find out more from you.

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