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Work vehicle totaled, insurance paid--replaced. Taxes?

Waters's picture

Doing my taxes...

So last October my Tundra was hit and totaled.  Other driver's insurance paid out.  I put all that money toward a newer used truck--about half its value, and financed the other half.

How should I deal with this in my taxes?


I owned the Tundra outright.


I understand the insurance payout for the totaled vehicle is Business income/gain.  Should/can I section 179 the new purchase?  Only part of it?  What about the 1/2 that's financed.

Never had to do this before.

Thank you.

The old vehicle should (post #209491, reply #1 of 1)

The old vehicle should already be on your taxes as an asset being depreciated.  You have now disposed of it.  Any insurance recovery is nothing more than cash received on the sale of that vehicle doesn't matter if you sold it to Bob next door or to the insurance company.  If the cash you received is greater than the depreciated value, you have a gain on the disposal.

The new vehicle simply goes on your depreciation schedule as a new asset at the price paid.  The method you paid for it doesn't impact its cost basis.

 

At least thats the simple explanation.  Go read IRS pub 547 paying attention to the business sections.

Separate in your mind the two transactions.  They are completely independent of one another.  What you do with the purchase including section 179 is entirely up to you.  If you 179 it, you won't have depreciation in future years to offset income in those years and if you should exit the business you will have a gain if you convert the property to personal use. (Note: you may have a gain anyway to the extent FMV at the time you stop the business exceeds the depreciated value but its almost a guarantee if you 179 property and then stop the business.)