Taxability of capital gainon disposition of a business assett

[Naveen Mohan from New York]

I have a client who used his Ford F-150 truck in his plumbing business. He is a DBA and he has been filing  Schedule C. In 2016 he surrendered this truck to the lender as part of his chapter 13 bankruptc0y and $ 6,000 of remaining debt was discharged as part of bankruptcy.

I understand that he does not have to pay tax on debts that were discharged in bankruptcy but how about capital gain on disposition of a business asset. ATX program is calculating on Form 4797 capital gain under section 1245.

Is he liable for tax on this section 1245 capital gain.

Thanks for your help.

Naveen Mohan

 

 

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[Lee B]

If there is any tax due wouldn't it be for recapture of depreciation instead of capital gain ?

[Naveen Mohan from New York]

It is due to recapture of depreciation and it is flowing though form 4797. What I am wondering is that since the truck was repossessed and balance due was included inhis chapter 13 bankruptcy, is he still liable for this tax on recapture? 

[Lee B]

According to The Tax Book, " The transaction  is treated as a sale of the property which may

result in a gain or a loss, unless one of the exceptions to the inclusion of cancelled debt income

applies. "  Suggest you read Pub 908, Bankruptcy Tax Guide.