Discussion:Sale of gifted business equipment
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Discussion Forum Index --> Advanced Tax Questions --> Sale of gifted business equipment
Discussion Forum Index --> Tax Questions --> Sale of gifted business equipment
| 9 March 2008 | |
| I have a client who was given a bulldozer by his father in 2004, which the client then used in his business until 2007 when he sold it. The bulldozer was purchased in 1979 so it was fully depreciated when it was given to the client.
As my client has zero basis in the dozer, is the sale treated as a long term capital gain for the entire amount of the sales proceeds, and given long term capital gain tax rates since it was held for more than one year? Or do I have to show recapture for the depreciation the father took on the dozer? I've been researching this issue for an hour and can't find anything clear on this issue. And the IRS code and regs seem to have a circular discussion on this issue. Thanks. It's always just "one thing" that holds me up from finishing the return. | |
RoyDaleOne (talk|edits) said: | 9 March 2008 |
| A transfer of Code Section 1245 property by gift is not subject to recapture. Code Section 1245(b)(1). That is to say the father has no recapture at the time of the transfer.
However, immediately after the transfer, the donee is considered to have a recomputed basis equal to the donor's adjusted basis plus depreciation previously taken by the donor, and any potential recapture is merely deferred until later disposition by the donee. That is to say in your case Basis in the son's hand is the father's basis. For example cost = 20,000 and accumulated depreciation = 20,000 or an adjsted basis of zero. On the sale of the item the son has recapture of 1245 deprication up to $20,000 excess if any is capital gains. If the sale is $9,000 the entire amount is recapture of 1245 depreciation, on the son's return. | |
| 10 March 2008 | |
| Agree with Roy. I think the regs are clear on this issue. See Reg ยง 1.1245-2(a)(4)(i). | |
