Discussion:Gain on sale of race car

Long time lurker, first time poster. We have a first year client operating a race team business as an S-Corp. Client did not file returns in 2005 or 2006, since she did not have activity.

We are now filing those returns. What she failed to mention was that in 2006, she sold their race car (original cost of 42,202 accum. depreciation of 28,135 at end of 2004) for $39,000. Including the depreciation expense of $9,378 for 2005, she is due to have a gain of roughly $34,000.

She used the funds from the sale of the first race car to purchase another race car the next day. Like-kind exchange cannot apply here so I have two questions:

- Is there anyway to defer the gain into the basis of the new vehicle?

- If not, is there any provision that allows the depreciation from 2005 and 2006 not to be realized since there was no activity going on in the S-Corp?

Thanks in advance all.

You will probable get more replys if you file out your profile

Good Luck

TexCPA 16:53, 11 March 2008 (CDT)

There is no quarter.

There is only Zuul§179.

What Dennis is saying is that since the disposition of the old car and the purchase of the new car occured in the same tax year, then you can expense the new car under §179 to offset (kinda sorta. it happens indirectly) the §1231 gain and §1245 recapture from the disposition. Especially since your client blew up the §1031 exchange.