Question

Automobile depreciation recapture

Forum|Forum|3 years ago
July 19, 2022
1 reply
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All the business assets of an S corp were sold except a vehicle which was fully depreciated. The S Corp is looking for new opportunities but is relatively inactive for the time being. What if anything needs to be reported to the irs regarding the vehicle?

Not A Product Question

M

Mike9241

if you're converting the vehicle to personal use, the proper treatment would be to treat it as sold to you for Fair Market Value. since its fully depreciated the S-corp will report this as section 1245 recapture - ordinary income. this will allow you to close down the S-Corp and file a final return.

if you don't do the sales route, technically if you using the vehicle for personal purposes. the IRS actually requires that the value of the personal use be included on your w-2. this has been true for decades but probably many ignore this rule. thus not only would you have to file a w-2 and w3 but also continue filing 941s form 940 and any state payroll tax returns.

here's the link

https://www.eidebailly.com/insights/articles/2018/1/personal-use-of-company-vehicle

M

manager5923Author

I have another S corp that is using the vehicle for business purposes. I suppose if I sold it from one to the other, I'd have to declare the income from the sale on one and depreciate the purchase on the other. But what if the vehicle was rented to the other company and that income was declared by the one and expensed by the other. That seems like it would have a lesser tax consequence, or at least defer the tax to a later date.

M

Mike9241

you may want to consult a lawyer. maybe the way to go is to merge the two S-corps, don't know what's in B so don't know if this would be appropriate. there is a thing that many taxpayers miss when they lease a vehicle for business purposes. it's the lease vehicle inclusion that would make a portion of the lease payments not deductible while all lease income would be taxable. there is the question about the need for you to take a salary from the first S-Corp.

read leasing a car starting on page 22 and lease vehicle inclusion on page 3

https://www.irs.gov/pub/irs-pdf/p463.pdf

or consult a tax pro who would be able to discuss all options including the pros and cons of each.