The G-Wagon Tax Write-Off (And The Section 1245 Trap)

The G-Wagon Tax Write-Off (And The Section 1245 Trap) Section 1245 recapture turns the G-Wagon write-off back into ordinary income when you sell, because bonus depreciation drops your basis to zero. Equipment is the deduction business owners love most, and vehicles are the favorite. Bonus depreciation lets you expense the vehicle up front instead of waiting out the normal schedule: buy the G-Wagon for $100,000 and write it off in year one. The trap is on the way out. Expensing it drops your basis to zero, so when you sell, Section 1245 recaptures the gain up to the depreciation you took as ordinary income: sell that fully expensed truck for $50,000 next year and you just created $50,000 of ordinary income, whether or not you remember to tell your preparer. US federal rules for business owners expensing vehicles and equipment, 2026. General education. 0:00 Why business owners love vehicle depreciation 0:52 Depreciation schedules vs bonus depreciation 2:07 The $100,000 G-Wagon example 2:37 What Section 1245 recapture is 3:06 Selling at a zero basis: all ordinary income What is bonus depreciation on a vehicle? Instead of depreciating a business vehicle over its normal schedule, bonus depreciation lets you expense it up front, which is why heavy vehicles like the G-Wagon are so popular. What is Section 1245 recapture? When you sell equipment you depreciated, the gain up to the depreciation you took is recaptured as ordinary income rather than capital gain. What happens if I sell a fully depreciated G-Wagon? Your basis is zero, so if you bought it for $100,000, expensed it, and later sell it for $50,000, that $50,000 is ordinary income in the year of sale. Do people really forget to report vehicle sales? Constantly; preparers see it every year, and the recapture is triggered by the sale whether or not you remember to mention it at tax time. Stephen Mandracchia, CFP® and IRS Enrolled Agent Tulip Financial Planning LLC, Alabama registered investment adviser Book a 30-minute call: https://tulipfp.com/?utm_source=youtu... Stephen Mandracchia, CFP®, Enrolled Agent. Tulip Financial Planning LLC is an investment adviser registered in the State of Alabama. This video is general education and not personalized tax, legal, or investment advice, and watching it does not create an advisory or client relationship. Any examples are hypothetical and for illustration only. They are not client results and no outcome is guaranteed. Tax rules change and results depend on your specific facts. Comments reflect the views of individual viewers, are not verified by Tulip, and are not testimonials or endorsements. #DepreciationRecapture #BonusDepreciation #TaxPlanning