Vehicle Transferred to New Schedule C Business in 2025 Creating Errors and Depreciation Recapture

[david3]

New client has a new Schedule C business in addition to the Schedule C business he had in 2024.

He transferred an auto purchased in 2024 and took $12,400 Sec. 179 deduction and $8,000 bonus depreciation. Business use in 2024 was 100% and business use dropped to 53.56% in 2025.

I'm following the instructions to show that the vehicle wasn't sold and is still being used by only entering the 1/1/25 date of disposition and entering nothing else in the disposition section. However, I get errors wanting the sec. 179 deduction allowed and bonus depreciation allowed. Also, if I enter 0s in the business miles driven and the total miles driven I get an error message stating that I need to calculate depreciation recapture and use SL method of depreciation.

When I enter the auto in the new business schedule C and indicate 53.56% business use then I don't get any errors. I entered $25,000 cost or basis (the original cost) on line 31 of the car -truck wks and on line 32 I entered $12,400 sec. 179 expense elected and on line 34i I entered $8,000 bonus depreciation allowance. However, on line 33 the depreciation and sec. 179 limit for automobiles shows $10,605. Is this the amount that needs to be recaptured and reported on F 4797? So, PS actually calculates the depreciation recovery amount? I don't have to manually calculate it? Now, I'm wondering if I should have entered the full $20,400 on line 32 sec. 179 expense elected instead of separating the sec. 179 deduction and bonus depreciation taken in 2024.

Since this is a new client maybe I shouldn't enter the auto for the old schedule C business. I think that's causing problems.

Thank you for your help.

[david3]

I need to clarify my question about the amount that shows up on line 33 depreciation and sec 179 limit for automobiles. I should have asked is the difference between line 32 sec. 179 expense elected $12,400 and line 33 depreciation and sec. 179 limit for automobiles $10,605 the amount of depreciation recovery I need to report on F 4797?

Thank you. 

[qbteachmt]

You have a sole proprietor.

They bought a vehicle in 2024 to use in the business. What is a Transfer?

Then, you are trying to have them "sell" the car from the old business to the new business, and treat it as if it is new in service for tax year 2025. And you want to take Section 179 and bonus on the same vehicle but for the new business.

There is no longer any use of the car for the old business, all use is the new business, other than the personal use? Or, is that split across two businesses?

[david3]

I must not have been clear in my explanation.

The TP purchased the vehicle for his only business in 2024 and deducted the maximum sec. 179 and bonus depreciation for $20,400. The vehicle cost was $25,000 and business use in 2024 was 100%.

The TP bought another Schedule C business 1/1/25 and began using that vehicle exclusively for the new business. I am not trying to take additional sec. 179 or bonus depreciation for that vehicle for the new business. I am treating it as a transfer from business 1 to business 2.

I am carrying forward the cost and sec. 179/bonus depreciation amounts from 2024 to the vehicle worksheet for the new business. The business use decreased from 100% in 2024 to 53.56% in 2025.

Since business use has dropped to 53.56% for that vehicle in 2025, it appears that the TP will report depreciation recapture on F 4797.

There is no calculation detail for the amount showing on the vehicle worksheet line 33 Depreciation and Sec. 179 limit for automobiles. I'm guessing that PS calculated the maximum allowed deduction based on the 53.56% business use. The limit amount on line 33 is $10,605. Do I report $9,795 depreciation recapture on F 4797 based on the $20,400 2024 sec. 179/bonus depreciation less the $10,605 limit shown on line 33 of the worksheet?

The instructions for line 33 say it is for information purposes. However, I am getting messages that say depreciation recapture will have to be reported. 

Hopefully, this helps clarify my question.

Thank you.

[sjrcpa]

So, I am tired and I'm not going over your calculations.

But my memory suggests depreciation recapture only occurs when the business use drops below 50%.

I don't use ProSeries, but isn't there some place to click to assign the car to the new Sch C, instead of the old one? (Lacerte thinking here)

Just make sure no depreciation is claimed this year.

[david3]

Ok. I thought that even though business use was above 50% that an adjustment was needed for the drop to 53.56%.

Thanks for your help.

[TaxGuyBill · Accepted solution]

Enter the vehicle for the second Schedule C EXACTLY as it shows for the first one, including previous section 179.

Delete the first vehicle.  Don't enter a disposition date, just delete the entire thing.

No recapture is needed because it is still over 50% business use.

[david3]

That makes sense.

Thank you.

[dd4vols]

Start from, scratch, with the asset in the old Schedule C.Open the asset but make no postings to this asset

Top Menu Bar>>>>>> select Forms>>>>>> Change activity>>>>> choose the new Schedule C.

Continue cyphering!

[david3]

When I click on Forms, I'm not able to select "Change Activity". It's grayed out.

Do you know why this would be?

Thanks.

[TaxGuyBill]

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@david3 wrote:

When I click on Forms, I'm not able to select "Change Activity". It's grayed out.

Do you know why this would be?

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That only works for Asset Entry Worksheets.  It doesn't work for Vehicle Worksheets (maybe because the vehicle worksheet can fit three vehicles on it).