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Article Date:
November 2013

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Test Your Tax IQ: Gain on Sale—Create Tax Benefits

Examine the two situations below.


Both Jake Smith and Tom Jones have an existing vehicle worth $25,000, the sale of which would produce a taxable gain.


As a replacement vehicle, Tom is buying a pickup truck that qualifies for immediate expensing in full, and he’s also paying the self-employment tax.


What’s of most interest here is that the best vehicle replacement strategy for Tom is different from the best replacement strategy for Jake. Let’s look at their situations.


Situation 1


Jake Smith is in the 35 percent tax bracket, and he can sell his existing business vehicle for $25,000. If he sells his existing vehicle, the sale will produce a $15,000 gain ($25,000 selling price minus $10,000 adjusted basis) that is subject to the recapture tax.1


To replace his existing vehicle, Jake is ... Log in to view full article.

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