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How do I record the purchase and sale of a business vehicle in service for less than a year?

Matthew Worden's Profile

Hi,

I am the owner/manager of a multi-member LLC.

On 1/30/2019, I bought a company van (12 pax) for $5,775, which I placed into service on 2/1/2019. Because the vehicle was supposed to be used for more than a year, I classified it as a fixed asset "vehicle", then I depreciated the van using straight line methodology over 5 years. However, I ended up needing to sell the van in November. I thought that I would be able to just zero the accumulated depreciation, and net the gain/loss under the income/expense account. Easy peasy. Everything looked good until I went to file my taxes, and learned that I can’t depreciate an asset that was placed in service and sold within the same year. Hence the dilemma...

Currently, I have it expensed under an account I’ve created called “Vehicles (Service life <1 year)”, but I still feel it should be capitalized under a current, non depreciable asset of some sort. Does anyone have any expertise they would be willing to lend?

Here are the summarized numbers:

Purchase cost of vehicle on 1/30/2019: $5,775
Sale of vehicle on 11/12/2019: $8,000

Thank you in advance,
Matt

Answers

Oluwatoyin Adun
Title: Finance Manager
Company: EBG
(Finance Manager, EBG) |

Hi Matt
To depreciate, asset should have a useful life of more than a year.
In this case, though unintended, you have used it for less. So you should reverse completely all depreciation and accumulated depreciation.

Then you can account for the gain on disposal of the asset and the related tax on the gain.

Varun Jain
Title: Founder
Company: Miles Education
(Founder, Miles Education) |

Purchase of a vehicle (an asset) is recorded by passing the entry:

Vehicle (Asset) a/c...Dr
To Cash/Bank a/c

Sale of the vehicle can be recorded using:

Cash/Bank a/c...Dr
Accumulated depreciation a/c...Dr (if any recorded month-on-month)
Loss on Sale a/c....Dr (If there's a loss)
To Vehicle (Asset) a/c
To Gain on Sale a/c...(If there's a gain)

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