How to Sell Partially Depreciated Assets

You may lose a portion of your depreciation deduction if you sell a depreciated truck for a gain.

The Internal Revenue Service provides a tax deduction for the cost of assets used in a business. If an asset will be used for several years, you cannot deduct its full purchase price during its first year of use. The deduction must be spread over the asset's expected life, according to its depreciation schedule. You may need to sell an asset before receiving all depreciation deductions. The tax treatment of selling a partially depreciated asset is the same as selling a new asset, unless the asset is sold for a gain. If you sell an asset for a gain, you may be charged recaptured depreciation as well as capital gains.

Instructions

1. Look up the initial purchase price of your asset.

2. Subtract all depreciation deductions taken from the asset. This gives you its current tax basis.

3. Contact the buyer of your asset and settle on a purchase price. Record this price for your tax records.

4. Deliver the asset to the purchaser and record any of your transportation costs. These costs can used as a deduction against the sale price.

5. Subtract the basis of the depreciated asset and all transportation costs from the sale price of the asset. If the result is negative, you can declare a capital loss to reduce your taxes. If the result is a zero, you have no tax consequences. If the result is positive, you will need to divide the gain between recaptured depreciation and capital gains.

6. Subtract the gain from the sale from the all depreciation deductions taken. All gains will be first considered recaptured depreciation. If the sale gain exceeds your total depreciation deductions, the remaining profit will be taxed as a capital gain. Recaptured depreciation is taxed as ordinary income while capital gains are taxed at the capital gain rate of 15 percent.

References

• IRS.gov: A Brief Overview of Depreciation
• IRS.gov: Ordinary or Capital Gain or Loss for Business Property