Motorhome

[TAXMAN]

Have TP who used a motorhome in pulling his race car to races. He quit the busines this year sold everything. Traded MH for a new one that he uses for personal use now.

Question 1: Would you use the trade value as a sales value for the 4797?

Question 2: Can I use the sales tax incurred(quite high) on sch A. TP financed all money above the trade in value.

What do you think?

[Elrod]

Yup...&...Yup...

[mcb39]

I would!

[Kea]

Don't forget loan interest as a mortgage deduction.

[OldJack]

>>Question 1: Would you use the trade value as a sales value for the 4797?<<!!

NO!!! Trade value is a plug figure to sell the new vehicle. Use FMV as shown in a blue book type publication.

[kcjenkins]

I agree with Jack on the trade-in value. Unless it is very close to blue book, I'd not use it. But remember also that not only is the sales tax significant, an RV qualifies as a 'second home' for deductions of interest if he financed it.

Unless, of course, he already has a second home...

[TAXMAN]

Follow up on MH. TP quit business in March 2010 and used MH as personal use. Do I still need to report this as a sale since he traded in April 2011?

[jainen]

>>Do I still need to report this as a sale<<

Yes. You must recapture Section 1245 depreciation on Form 4797. (Section 179 should have already been recaptured in the year of conversion.) Any additional gain is taxable, but loss is personal so non-deductible.

And I disagree about using some average Blue Book value instead of what was actually agreed to, There are all sorts of reasons about condition and local market that can not be reflected in Blue Book. If the trade-in was overvalued, the dealer would be getting less than the new vehicle is worth and that just doesn't happen.

[OldJack]

>>the dealer would be getting less than the new vehicle is worth and that just doesn't happen. <<

Having worked many years as a business manager of a new car auto dealer, and many years as a CPA auditor of dealerships over a 3 state area, I can say the dealer always gets exactly what he wants for his new vehicle or he would not trade. The trade-in figure in the deal is a plug figure and usually not realistic as to the value of the trade-in vehicle.

[jainen]

>>the dealer always gets exactly what he wants for his new vehicle<<

That's right. If the buyer agrees to his price of $50,000 that's what the deal is. If he allows $15000 on the trade, he gets $35,000 more in cash or financing.

That does not imply that the buyer got the only or best price available for his old vehicle. It would have a different value in a different transaction, such as an auction, the dealer across the street, or U-Sell. But that's what he agreed to take for it in trade, so that's what it sold for. Not what it could have or should have. Just what it did.

[OldJack]

>>But that's what he agreed to take for it in trade, so that's what it sold for. <<

He actually didn't sell it, he traded it!!

[TAXMAN]

I am still somewhat confused. TP never took any 179. Just depreciation. Converted to personal use in 2010 and then traded in 2011 for another one which is used for personal use. Do I really need to show it as a sale or adjust the basis on the new one for a future sell?

[jainen]

>>Converted to personal use in 2010 and then traded in 2011 for another one which is used for personal use. Do I really need to show it as a sale or adjust the basis on the new one for a future sell?<<

Neat tricks! You have to recapture Section 1245 depreciation (to the extent of gain) when you dispose of a business asset. But can you avoid recapture by retiring it from business use for a spell? Actually, no.

Or how about rolling the gain on personal-use property into replacement property like a 1031 exchange? Nope, not that either.

[OldJack]

Withdrawal of the vehicle from a business other than a corp is tax free until the asset is disposed of. A trade of the vehicle is not disposition and is a tax-free exchange (1031) with the new vehicle taking the tax attributes (basis) of the traded vehicle. The new vehicle tax basis is the tax basis of the traded vehicle plus any additional cost of the new vehicle such as down payment plus financing cost. There is no depreciation recapture at trade time. I usually report the traded vehicle at no gain on form 4797 only to account for the vehicle deleted from the depreciation schedule.

[TAXMAN]

Thanks to all. I really didn't mean to stir up this mess but thats what the TP gave me. Is this a good board or not. Lots of experts on here. Many thanks