Archive for February 23rd, 2005
Taxing Stupid People
Posted by taxguru on February 23, 2005
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SUV Sec. 179 Recapture
Posted by taxguru on February 23, 2005
Q:
I bought a 2004 Chev Suburban loaded to the max in December 2003, took a huge section 179 writeoff, 100 pc. We can call that purchase price ‘X’.
Unfortunately I have had to file Chapter 13 and the truck will be turned in this year (2005), probably
being sold at auction in the 20s…you say on tax guru the following
‘If you sell the previously deducted vehicles, you need to report the sales on Form 4797 and show
anything that you get for it above its depreciated book value as depreciation recapture ordinary income.
A sale only makes sense tax wise if the price you can get for it is less than the adjusted depreciated book value, so that you can claim the loss on Form 4797.’
I think I sound safe but and way you can clarify would be greatly appreciated…
A:
From what you have said, you will need to report the sale of the Suburban on your 2005 1040 via Form 4797. If you did write off its total cost on your 2003 1040, its book value is zero; which means that whatever you receive for it is taxable recapture gain.
If you are in bad enough financial shape that you had to file for bankruptcy protection, odds are that you have other losses that will more than offset the 4797 gain; which will make the actual tax hit on the disposal of the Suburban zero.
I’m sorry I can’t be of more assistance. Good luck.
Kerry Kerstetter
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Rules Are DIfferent For Primary & Second Personal Residences
Posted by taxguru on February 23, 2005
There has never been a shortage of misinterpretations of tax law, such as in this question we received the other day.
Help me with this one.
I understand that a vacation property can be classified as a second home. By this I mean that it actually qualifies for tax exemption as your residence when you sell it.
Is it possible to do a tax free exchange from a duplex to a condo and then sell this after a period of time, like five years, as a second home per my understanding above?
The duplex is pure rental property. The condo will be used by us and rented by a property manager when we are not using it.
My Reply:
You are correct that a vacation home can be considered as a second personal residence, which allows you to deduct its mortgage interest and property taxes on Schedule A.
You are wrong, however, in regard to the tax free exclusion of gain. That is only available for the sales of primary residences. Second homes have no tax free sale treatment. Any gain is taxable, and any loss is not deductible.
You can see the rules for tax free sales of primary residences at:
www.taxguru.org/re/primary.htmI hope this clears this matter up for you.
Kerry Kerstetter
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Posted by taxguru on February 23, 2005
Top 5 Audit Myths – One person’s opinion. I am one of those who disagree with him on the issue of filing later to reduce audit potential. I still stand by what I have been saying for decades.
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A Reasonable Question To Ask
Posted by taxguru on February 23, 2005
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Tax Guru - Ker$tetter Letter 