Section 179: buy items one year, sell them the next year, repeat?

Question

Can I take advantage of Section 179 by purchasing something in one year, selling it the next year while buying a new thing the next year, and repeat each year?

So for example,

• buy property for business in 2018, get Section 179 deduction for 2018 property
• sell 2018 property in 2019, buy new property in 2019, get Section 179 deduction for 2019 property
• sell 2019 property in 2020, buy new property in 2020, get Section 179 deduction for 2020 property
• etc

Is there an advantage in doing that, if allowed?

Eamonn McElroy · Answer

@Joe Pea

There are very specific rules relating to S179 of property leased out to customers by non-corporate taxpayers. I'd encourage you to reach out to your CPA post April 15th for the details and an in-depth explanation.

While it would be advantageous for tax to do what you're describing (assuming it's permissible under Sec 179), it's most likely poor business sense. Your cash flow and ROI will suffer. If it's such a good idea you have to ask yourself why the big boys -- Hertz, Enterprise, Alamo, U-Haul, etc -- haven't been doing it for decades.

Eamonn McElroy · Answer

Gain = proceeds - tax basis

Loans do not factor into the equation.

There are special rules surrounding S179 and vehicles (called "listed property").

Ashish Acharya · Answer

You have to recapture the depreciation when you sell it. It’s called section 1245 depreciation recapture. And these depreciation recapture is taxed at ordinary rate. So selling it next year after taking 179 does no good. You will have saved nothing as you have to recapture full amount of section 179 deduction next year to the extent of your gain.

Your entire sale proceeds gain because you don’t have any basis as you took section 179 deduction.

Joe Pea · Answer

What I am doing with the vehicles is using them as rentals (renting them out to people on getaround.com, turo.com, etc, and do the work like cleaning the cars, handing renters the keys, checkin, checkout, etc). If I'm using them that way (for actual business), and then selling the next year, is it different?

Eamonn McElroy · Answer

My understanding is he's talking about personal property used in a trade or business guys. Not real property held for sale in the ordinary course of a trade or business...

Syed H. · Answer

Most of us flippers are considered dealers. So that won’t work.

From what I read investment property doesn’t qualify for a 179 deduction. Property bought for a business or trade purpose can. But if you dip it every year you are begging for an audit and I’d bet they would rule you weren’t using the property for a trade

If you use 179 deductions for vehicles, make sure you keep very detailed logs. You WILL get audited eventually.

Craig Jeppesen · Answer

No, if you are flipping, buying is inventory. You don’t expense it until you sell it. Also loans have nothing to do with a taxable gain. A gain is sell price less selling fees less your basis. The gain is basically the same whether there is a loan on it or not.

Joe Pea · Answer

But there's also the loan for the item. I have a car finance for example. So if I sell it, and that money goes straight to paying the finance (plus I pay any small amount that might be left, what happens? Do I still have to report the sale price entirely as income even though it went straight to the loan payoff?

Eamonn McElroy · Answer

@Joe Pea

You realize the proceeds will be taxable income right?

Ordinary income potentially subject to SE taxes for an asset used in a trade or business.

And it's very unlikely you're going to get back when you paid for the asset when you're selling it with one year's use on it.

Section 179: buy items one year, sell them the next year, repeat?

Section 179: buy items one year, sell them the next year, repeat?

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