Sale of business vehicle with 80% business use

Technical topics regarding tax preparation.
#1
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A vehicle was purchased by an s corp, but due to the nature of the business, it is not used 100% for business (i.e. it is available for personal use by the business owner). We've indicated in Lacerte that it is 80% business use, thus limiting the amount of depreciation can be taken.

When the asset has been fully depreciated, it will still have a book basis = 20% of the cost since that is the personal use portion, and the portion that cannot be depreciated. Book depreciation = federal tax depreciation in this instance.

Once the asset is sold by the business, for tax purposes, is the gain/loss based on the 80% business use (i.e. 80% of full cost less any A/D to date), or is the 20% personal use included in basis such that when fully depreciated, its NBV for tax will be fixed at 20% of original cost?

In other words, if the asset is disposed of for $0 after it has been fully depreciated, is the loss for tax purposes $0 or 20% of the original cost?
 

#2

#3
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The loss, if any, on the personal use portion is a non-deductible personal loss.
Because on T.A. ten was the most you were allowed
 

#4
Doug M  
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We've indicated in Lacerte that it is 80% business use, thus limiting the amount of depreciation can be taken.


This is not the correct way to handle a S corp. owned vehicle with personal use by the shareholder.

First of all, all the expenses associated with the vehicle should be deducted in full in the corp. tax return. You do not limit depreciation etc. You do not allocate out the gas/insurance/repairs etc. 80/20. You are to include the personal use using the ALV tables as prescribed and included (via W-2) on the shareholders personal tax return.

The sales price is 100% allocated to the S corp. The depreciation allowed or allowable is reduced from basis. The corp owns the vehicle, right?

If there is a loss, the loss is deducted on the S corp. tax return. If the shareholder buys the car, then the loss is limited.
 

#5
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Somehow I managed to miss the part about the vehicle being purchased by the S corp. I think because the OP mentioned "personal use" and of course S corps, ( or C corps, or partnerships really ) do not have personal use of vehicles that they own.

Thank you, Doug for setting the record straight.
Because on T.A. ten was the most you were allowed
 

#6
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Thanks Doug. Unfortunately, this 80/20 split is how the firm has been handling the vehicles used personally.

Thank you for the heads up, as this is something I'll need to look into/implement.
 


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