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What are the tax implications when a truck is sold, foreclosed on or turned back to the dealer?
In order to understand the tax consequences, you need to be aware of the original cost of the
equipment or its initial basis. The original cost of the equipment is obviously what you paid for
it, but the initial basis would be the initial cost adjusted for any gain or loss that resulted from
a trade-in when you acquired the equipment. Then you need to know its adjusted basis. The
adjusted basis is the original cost or initial basis less any depreciation taken prior to the sale,
foreclosure, or turning in of the equipment. Keep in mind that when trying to understand the
tax consequences of the above, the dollar amount that you owe (the loan balance) or receive
upon a sale is not necessarily used to determine whether you ultimately had a gain or loss
on the equipment transaction. However, the loan balance is used as the sales price in certain
circumstances, as shown below. The amount that you owe will determine how much cash you
realize from the sale of an asset but the accumulated depreciation you have taken will play a
major part in determining gain or loss.

For example, if you originally bought your rig for $110,000 and you have taken $90,000 over the
years in depreciation, your adjusted basis for purposes of computing gain or loss is $20,000; the
$110,000 less the $90,000 in accumulated depreciation. If you were to sell that equipment for
$40,000, you would then have a $20,000 gain to report on your income tax return. The selling
price of $40,000 would be reduced by your $20,000 adjusted basis which leads to the $20,000
gain. If, when you originally bought the truck, you paid $10,000 down and had a $100,000 loan
and repaid the loan down to $30,000, which was the amount owed at the time of the sale, you
would then walk away with $10,000 cash. Even though you have $10,000 cash, you have a
$20,000 gain which, again, is the $40,000 sales price less the $20,000 adjusted basis. However,
again, you would only have $10,000 in cash which is the $40,000 sales price less the $30,000
loan payoff.

If you were to trade the truck in and they gave you a $40,000 trade-in value on a down payment
of a new piece of equipment, you would still have a $20,000 gain. However, on a trade in,
you do not report the gain; you reduce the basis of the new equipment that you buy. If the new
equipment is costing $130,000, you would then reduce that by the $20,000 gain not reported and
depreciate the new tractor starting at $110,000.

Note: Depending on your financial situation, a trade-in may not be in your best interest.

What happens if you turn your truck in or it was repossessed and you owed $20,000?
The IRS says that any loan forgiveness is a taxable event. When the property is repossessed or
abandoned, the taxpayer generally reports the transaction as if it is a sale. The amount realized
on the sale of the property is determined by whether the debt was non-recourse or recourse.

The borrower is personally liable to pay any amount of the debt not covered by the value of the
property. The amount realized is the smaller of the debt cancelled or the fair market value of the
transferred property. Report the income from cancellation of a debt as business income. The
only time you would not have to report a gain for loan forgiveness is if you filed for bankruptcy
or if you're insolvent.

This article has been presented by PBS Tax & Bookkeeping Service, a company which has
been providing income tax and bookkeeping services to the trucking industry for over a quarter
century. If you would like further information, please contact us at 800-697-5153. Visit our Web
Site at http://www.pbstax.com/.

"Everyone's financial situation is different. This article does not give and is not intended to
give specific accounting and/or tax advice. Please consult with your own tax or accounting
professional."

Everyone's financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.

This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article were made by Shasta May, Director Business Development for PBS. If you would like further information, please contact us at 800-697-5153. See our website at www.pbstax.com.