Tax Guru – Ker$tetter Letter

I received the following email from a CPA in Michigan in response to my most recent post on recapturing Section 179 expense deductions.

Subject: Your Blog Article On Section 179 Recapture

The sale of an asset that taxpayer had originally taken Sec. 179 deduction is more complex than this.

How it is handled depends on the entity (I am ignoring trades)

 

Section 179 recapture is ordinary income subject to self-employment taxes for self-employed/partners. The recapture adds to basis creating smaller gains or larger losses. The losses are 1231 losses subject to 5 year lookback on 1040s etc.

 

Milt Baker CPA  Michigan  

 

P.S. I enjoy your Blog site on which you post great information and fabulous cartoons.

THANK YOU

Milton:

Thanks for the additional info.  I always have the dilemma of how technical to make my answers for non tax pros.  In this case, I was just trying to let him know that there were potentially expensive tax consequences to his scheme of buying and selling new vehicles each year.  As I’m sure you encounter in your practice, there is no shortage of people who think they’ve discovered a way to game the system, only to make things worse for themselves.

I hope that everyone who reads my postings gets my point that they need to consult with a tax pro before embarking on their tax savings plans.

Thanks again for writing and feel free to contribute anything else that you feel is appropriate.

Kerry Kerstetter