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Is money from the sale of an asset, like a pickup truck, considered income? For example, let's say I am a carpenter and I buy a new pickup truck for $40,000. I deduct $18,000 in depreciation for the first tax year, then $16,000 for the second tax year, then $6,000 for the third tax year. So, altogether I have written off the entire cost of the truck. Now, let's say at the end of the third year I sell the truck for $20,000. Is that $20,000 now considered income?

If I had depreciated only $15,000 of the value of the truck, then in that case would only the difference between the remaining value and the sale price be income?

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  • "in that case would only the difference between the remaining value and the sale price be income" The entire sale price would still be gross income, only the difference would be net income.
    – Ben Voigt
    Jul 26 at 17:19
  • Don't you think the Question would be much more clear without the depreciation detail, however much that matters at the end of the day? The depreciation is to be set off against your liability for tax, whether or not there is any liability. Jul 26 at 20:30
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    @RobbieGoodwin: No, the (claimed) depreciation is an important part of the scenario because it results in the zero cost basis and turns a loss into net income.
    – Ben Voigt
    Jul 26 at 21:08
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Yes. What you describe is similar to those who buy a rental property, take depreciation, and then sell it. (With no replacement 1030 exchange, etc).

As a consumer, I buy a car, and sell it for a lower price some years later. Not much different from selling my old stuff at a yard sale.

But when you, a business person, recoups money from an asset with a basis that's dropped to zero, the tax man has his hand out.

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    "the tax man has his hand out" makes it sound a bit unfair, but considering you saved tax by counting the depreciation expense, it's not.
    – user253751
    Jul 26 at 9:10
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    This answer could do with a few improvements - like pointing out the limit to how much you can make by selling an item before you have to declare it as income, and how to declare the sale of the car on your income tax return (if at all). I don't know the answer to these questions, but I am wondering now what the answer would be.
    – Zibbobz
    Jul 26 at 16:58
  • If one has written off depreciation on the asset, that would imply the cost basis has dropped to zero. If one sells an item after having used it for a few years without writing off depreciation, at a typical market price for such an item, and the market for such items has been such that prices drop with age, would one be required to document the cost basis to avoid having to treat the entire sale price as income, or would one be presumed to have bought the item at a typical price for such items?
    – supercat
    Jul 26 at 17:31
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    @supercat: The current question is tagged small-business, a business had better have documentation of the cost basis and current valuation of its assets even though an individual might get away without.
    – Ben Voigt
    Jul 26 at 21:07
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    @BenVoigt: If someone decides to convert a hobby into a business after ten years, they are likely not to have purchase records for all of the equipment they'd bought when they took up the hobby. I understand that purchase paperwork would be needed to claim depreciation, but if e.g. a Widgetmaker was worth $1,000 when bought new by a hobbyist and about $300 when the hobby is converted to a business, and it ends up being sold by $200 when the business needs to upgrade to a newer model, the sale would seem to be if anything a $100 loss.
    – supercat
    Jul 26 at 21:46
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As with all tax information from the Internet, you should verify this with your accountant and/or tax professional. If you have neither, call the IRS and ask; they are not evil monsters.

The JTP answer is correct, this has some (maybe) clarifications.

The short answer is: yes, it is taxable income.

Longer (slightly different from the JTP answer) answer is:

You received a tax discount for an asset (the vehicle) for three years. You have declared that the asset has zero value (which seems appropriate). Now, you sell the asset for $20,000. It appears that the asset has non-zero value. That implies that you received more tax discounts for the asset in question. Instead of penalizing you for over depreciation of the asset, the IRS has you declare the $20,000 as taxable income.

perhaps a better description
After depreciating the asset to zero dollars, when you were able to sell it for $20,000 you "recovered" some of the lost value of the asset. That "recovered" sum is taxable income and not capital gain.

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  • "Instead of penalizing you for over depreciation" - Businesses depreciate assets to zero all the time, to zero. Sales are taxable at that point, recapture rate depending on asset. Not really sure what you think this offered that's any different from what I wrote. The OP understood my response and had no follow up clarification. Jul 27 at 22:28
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As any other transactions that can earn you dollars, the sale of an asset also is considered as an income for you. Hence it is considered as an income, you have to pay a particular tax for it. In other terms this is also known as capital gain.

Now while you sell your depreciated pickup truck, by using the section 179 deduction, the entire selling price of $20000 can be considered as a taxable income.

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  • Capital gain is when you sell something for more than you paid for it; the difference is the gain (and if you sell for less it's capital loss). But I think there are different rules for depreciable property.
    – Barmar
    Jul 27 at 15:10
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    You might wish to review the article Depreciation Recapture - non real estate recapture does not enjoy the favorable cap gain rate. Your use of the term Capital Gain is misleading, a bit. Jul 27 at 22:36

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