Hello, A couple questions regarding Section 179.
Is there an expiration on the recovery period ? Example: a vehicle purchased for $6000.00 and 179 was taken in full. Full vehicle depreciation over 5 years. Would selling the vehicle year 6 result in a gain and recovery ? Is there a point in time when the recovery wouldn't apply ? What if the vehicle was sold in the tenth year for example ?
Using the same vehicle example above. In the 6th year the vehicle breaks down and repairs exceed the market value so no repairs are made. The vehicle is scrapped for $500 which I assume would be a gain. Can the amount of the needed repairs or any other loss be entered as a loss or deduction ?
It is very, very rare that when you sell a vehicle, you will sell it at a gain even after recapturing the depreciation as required by law. But if you're like me and keep a vehicle until it falls apart, chances are you will depreciate it fully. I know I've had my 100% business use truck for 13 years now. Even though I take the "per mile" deduction I have no doubt I've depreciated the vehicle completely by now. So when I get rid of the truck, if I even get $1 for it as scrap, I'm fairly confident that $1 will be a reportable/taxable gain.
"Is there an expiration on the recovery period ? "
Yes. But it depends on the depreciation table used. For vehicles, the most common is MACRS GDS which is 5 years for most vehicles under 6000lbs. Using the SEC 179 in the first year doesn't really help you if the business does not have the otherwise taxable business income which to claim it against. So if there's a chance that vehicle will no longer be used in the business before the 5 year period is up, it may not be beneficial to take the SEC 179 deduction in the long run.
"The vehicle is scrapped for $500 which I assume would be a gain."
If the vehicle has been fully depreciated by that time, then yes it would be a taxable gain. Also, if you take full depreciation in year 1 under SEC 179 and the vehicle gets totaled in an accident in year 2, then 100% of the insurance payout is taxable income.