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I own a commercial fishing business. I want to sell my current

Customer Question
boat and buy another. My...
I own a commercial fishing business. I want to sell my current boat and buy another. My boat is fully depreciated and will sell for around 140,000. The boat I want to buy will cost 100,000 and will need 40,000 of improvements made. What is the best way to handle the capital gains taxes on my current boat?
Submitted: 6 years ago.Category: Tax
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5/9/2011
Tax Professional: BK-CPA, Certified Public Accountant (CPA) replied 6 years ago
BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience: Owner of a CPA firm
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Hello and thank you for your question.

 

If you sell your boat for cash and buy another boat, then you are going to have to recognize the capital gains and IRC 1245 depreciation recapture as applicable. IRC 1245 depreciation recapture disallows capital gain treatment on the portion of a sale that pertains to prior years' depreciation deductions against ordinary income.

 

To avoid having to recognize gains all together, you may look to IRC 1031, which will generally allow you to exchange one boat for another boat in a tax-free exchange. See IRC 1031 here:

 

http://www.law.cornell.edu/uscode/26/usc_sec_26_00001031----000-.html

 

(a) Nonrecognition of gain or loss from exchanges solely in kind

(1) In general No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.....

...

...

 

I hope this is helpful to you. Thank you again!

BK-CPA
BK-CPA, Certified Public Accountant (CPA)
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