Vehicle over 6,000 lbs. Car Dealer needs deduction

[yeknod]

I have a client that is being told by another CPA they can purchase (in December) a 6,000 lb. vehicle, write it off with bonus depreciation in 2022.  Then, sell if in January 2023 without recapturing any depreciation as long as they purchase another more expensive that the previous vehicle in December of the following year (2023).

Is this something that can be done, and I don't know about it?

Thanks 

[IRonMaN]

That other CPA should quit listening to his barber

[Terry53029]

The new tax law on selling section 1245 property has nothing to do with buying another 1245 property. The entire amount of depreciation claimed on section 1245 property, including bonus depreciation and the section 179 expense allowance, is recaptured as ordinary income to the extent of gain.

[TaxGuyBill]

1) Dealers (in the business of selling items) don't use Bonus or 179 on Inventory.  It isn't a deduction until it is sold.

2) Like-Kind Exchanges (1031 Exchanges) only apply to real estate now, so that idea of 'purchasing a more expensive vehicle' would not apply.

[yeknod]

The dealer is purchasing it to use as his business vehicle and not as inventory.  The other partners CPA is telling them they can purchase a 6K lb. vehicle and write it off in 2021 then they sell it but have to purchase a new one before the end of the following year.  Any ideas?

[Terry53029]

See @IRonMaN reply 😀

[TaxGuyBill]

They certainly can purchase a business vehicle, and bonus depreciation would deduct the full cost of the business percentage of the vehicle (assuming the vehicle is over 6000 pounds).  It is just like any other asset.

But no, selling the vehicle after that WILL result in taxable income, regardless if they purchase another vehicle or not.  That second vehicle may qualify again for Bonus or 179 (but as of now, Bonus is reduced to 80% in 2023), but that does NOT affect the gain of the first vehicle.

[IRonMaN]

Any ideas?

It might be a good idea for this year but after that the plan falls apart because of needing to go through the recapture process each year that the previous vehicle is disposed of when a new vehicle is purchased.  Are they really talking to a CPA or are they dealing with  a used car salesman?

[GeorgiaRe Tired]

I think he meant selling it for cash! lol Yes on bonus.  No on the resell and purchase.