Understanding 179 Depreciation Rules

[chris95040]

Originally Posted by denverd0n

First off, I have to say that you really should be talking to a tax professional about this. I know you said that you intend to talk to a CPA, but I would have started there, not on an internet forum. That said...

It's free and easy to ask this question on an internet forum - no cost to the person who asked. There's a nonzero chance they'll come away with some new questions they wouldn't have known to ask the paid professional, making that time with them more valuable. Later, they can still come back here and ask follow up questions. There is absolutely no downside to asking the question here first, and some potential upside. Starting an exploration with the highest cost resource is insane.

[14murs14]

Originally Posted by Jammer

I think you will find that there is quite a bit more to the story.


When an captial asset is written off in the year of purchase under section 179, it produces an immediate loss that can be deducted from regular business income. Absent the recapture provisions, it would be possible to sell it immediately (next day, next tax year, doesn't matter) for close to the purchase price, producing a capital gain. This would allow an asset that served no real business purpose to be used solely as a vehicle for converting regular taxable income into a capital gain so that it could be taxed at a lower rate.


This was anticipated by the tax rules, so there is a recapture provision that closes the loophole by retroactively changing the tax treatment back to that of an ordinary capital asset, which must be amortized over the life of the asset.


I don't actually know anything about taxes, but that is my understanding.

The corporate tax rate is the same for capital gains as ordinary income, so it would really be effectively pointless to do those machinations for a capital gain if you're set up as a corporation. LLC distributions of property are pretty complex, beyond what could be covered here, but there isn't a great clean way to do that with an LLC either.

In any event, I think the OP effectively thought they could sell their asset without paying taxes on the proceeds if they waited some period of time, which would never be the case.

For what it's worth, I have started and run two companies and just finished the first set of taxes for our first foreign subsidiary which makes this top of mind for me, so while I'm not a CPA I do know enough to at least have a good idea of what I don't know in this area.

[hellosailor]

Sea2-
I think you need to buy an hour with a CPA or EA. Among the speedbumps...if *you* buy a boat, there's no depreciation to consider. If your *business* buys the boat, then yes the business can take depreciation on the asset, but the business also has to take income when the asset is sold. And, if you own the business and sell the asset to yourself, one of the taxmen is likely to get upset if it isn't sold at full "book" value. I suspect a CPA will be far more familiar with, and certain of, the issues that may arise. Including the recent changes in so many business tax regulations, and what will be different depending on what type of business (LLC, etc.) you choose to have the boat operated under, or whether you own it outright.