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Posted: 4/13/2011 6:15:44 PM EDT
Had a truck, bought it for 11,640
Started a business, truck used 100% biz for 5 years.
Used standard mileage deduction
Sold truck for $4,000 this year.
Gain, according to IRS:$3941

From what I'm gathering, I'm getting charged for the portion of the standard mileage deduction that is calculated for deprecation. It comes up to $9370 over the past 5 years the truck was in service. Table below.
Is it really costing me about 2K in taxes to sell a 4K truck?
Most of the 2K difference is wrapped up with whatever kind of goatfuck is going on with the deprecation (Changed sale price to 0 for shits & giggles)
The link is not my question, but sums up my situation
selling at a loss for a gain?

Now if I bought a econobox for $2K and drove it 30k miles a year for 5 years, it looks like I'd max out at the value of the car and not be subject to getting charged with the depreciation over the years.
If I bought a $55K truck, and burned up the road, I'd be up to my eyeballs in deprecation when I sold it.
It's not making sense and I'm having a hard time accepting the situation my truck is in as correct.

depreciation to up to limit of vehicle cost

Am I missing something that would get my tit out of the wringer?
Did I screw something up?

––––––––––––––––––––––––––––––––––––––––––––­––––––––––––––––––––––––––-


To determine the amount to enter for depreciation, multiply your business mileage for each year that you used the standard mileage rate by the amounts below. Use these amounts for both your regular tax depreciation and your AMT depreciation. However, the total amount you enter cannot exceed the depreciable basis of the vehicle.

Remember, if you used the actual expense method in any year, you must use the depreciation computed for that year instead of the mileage amounts.

 2010........23 cents
 2009........21 cents
 2008........21 cents
 2007........19 cents
 2006........17 cents
 2005........17 cents
 2004........16 cents
 2003........16 cents
 2002........15 cents
 2001........15 cents
 2000........14 cents
 1994-1999...12 cents
 1992-1993...11.5 cents
 1989-1991...11 cents
 1988........10.5 cents
 1987........10 cents
 1986.........9 cents
 1983-85......8 cents
 1982.........7.5 cents
 1981.........7 cents
Link Posted: 4/13/2011 6:19:15 PM EDT
Whoa....

If you bought it for personal use, then used it for business, when you sell it the sale price doesn't go on any tax form as income. You simply used your POV for your business.

Link Posted: 4/13/2011 9:14:25 PM EDT
a friend who has a business told me, never buy a vehicle for  business, if you lease there is more tax advantage to it.   monthly  lease payment is tax deductable, along with insurance, gas and something he said about inclusion or something like that
Link Posted: 4/13/2011 9:22:05 PM EDT
You depreciated the vehicle below its market value.

Basically you already received the tax benefit over the years when you claimed the mileage as if the vehicle was nearly worthless now.

When it turned out not to be, you owed the money you'd claimed as losses back to the government as income subject to taxation.

You'd probably have been better off keeping the truck, or giving it to an employeee as a bonus or something.

In any case, you should be looking into the tax implications of these things before you make the decisions, it sucks but it's the number one difference between successful businesses and those that are less so.
Link Posted: 4/13/2011 9:25:01 PM EDT
I am only getting a gain of $1730. Hmm.. Whats the mileage you are using?
Link Posted: 4/13/2011 9:26:57 PM EDT
Quoted:
I am only getting a gain of $1730. Hmm.. Whats the mileage you are using?


I noticed that too but if he bought the truck before he started his business the depreciable value of the vehicle would be less than the purchase price, since it would be older/higher mileage than when he purchased it.

Link Posted: 4/13/2011 9:35:02 PM EDT



Quoted:



Quoted:

I am only getting a gain of $1730. Hmm.. Whats the mileage you are using?




I noticed that too but if he bought the truck before he started his business the depreciable value of the vehicle would be less than the purchase price, since it would be older/higher mileage than when he purchased it.





Thats an unknown also, I made assumption, he would have used the purchase price, given thats the information available. 3941-1730=$2211, would be the amount he used prior to starting the business under that scenario.

 
Link Posted: 4/13/2011 9:41:46 PM EDT
I'm not going to be of real help...



but why report it as sold if you're going to have to eat a crap load of taxes?
Link Posted: 4/13/2011 9:48:42 PM EDT


It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.





Which means you have a 0 basis in your truck.





If you sell something for 0 basis for $4000 then you have a $4000 gain.
Look at the bright side. It is a capital gain.






Oops, sorry.  It is ordinary gain.  

Link Posted: 4/13/2011 9:52:11 PM EDT




Quoted:

You depreciated the vehicle below its market value.



Basically you already received the tax benefit over the years when you claimed the mileage as if the vehicle was nearly worthless now.



When it turned out not to be, you owed the money you'd claimed as losses back to the government as income subject to taxation.



You'd probably have been better off keeping the truck, or giving it to an employeee as a bonus or something.



In any case, you should be looking into the tax implications of these things before you make the decisions, it sucks but it's the number one difference between successful businesses and those that are less so.

ALWAYS talk to your accountant before making a large economic (for your business) decision.

Link Posted: 4/13/2011 9:54:37 PM EDT



Quoted:



It sound like you depreciated your truck down to 0.  It would help if you told us what you have as accumulated depr related to that asset.





Which means you have a 0 basis in your truck.





If you sell something for 0 basis for $4000 then you have a $4000 gain.
Look at the bright side. It is a capital gain.







He said he had deprecated it $9370, thus why it has me perplexed.



 
Link Posted: 4/13/2011 9:59:13 PM EDT




Quoted:





Quoted:



It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.





Which means you have a 0 basis in your truck.





If you sell something for 0 basis for $4000 then you have a $4000 gain.
Look at the bright side. It is a capital gain.







He said he had deprecated it $9370, thus why it has me perplexed.





Is he including the last years depreciation I wonder?



Or did he miss a partial year when he entered it into service?
Link Posted: 4/13/2011 10:01:53 PM EDT





Quoted:
Quoted:
Quoted:




It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.
Which means you have a 0 basis in your truck.
If you sell something for 0 basis for $4000 then you have a $4000 gain.
Look at the bright side. It is a capital gain.











He said he had deprecated it $9370, thus why it has me perplexed.








Is he including the last years depreciation I wonder?





Or did he miss a partial year when he entered it into service?



That would be my guess, given that for a gain of $3941 on a $4000 sale, he would still have $59 "left" to depreciate off the truck before $0





 
Link Posted: 4/13/2011 10:10:11 PM EDT
Quoted:
In any case, you should be looking into the tax implications of these things before you make the decisions, it sucks but it's the number one difference between successful businesses and those that are less so.


This makes my blood boil.
Link Posted: 4/13/2011 10:15:58 PM EDT
Quoted:
It sound like you depreciated your truck down to 0.  It would help if you told us what you have as accumulated depr related to that asset.


Which means you have a 0 basis in your truck.


If you sell something for 0 basis for $4000 then you have a $4000 gain.



Look at the bright side. It is a capital gain.





No, it's ordinary income.

Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.

OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.

But, your 50 percent tax on this gain appears incorrect.  I didn't know the tax rates were at 50 percent for 2010?
Link Posted: 4/13/2011 10:20:27 PM EDT
Quoted:
Quoted:
In any case, you should be looking into the tax implications of these things before you make the decisions, it sucks but it's the number one difference between successful businesses and those that are less so.


This makes my blood boil.


In this instance, the OP is paying tax on the recoupment of depreciation deductions he claimed and was reimbursed for when he sold his business vehicle.

ETA:  I suppose he could have leased the vehicle and not had this problem.........but, he wouldn't have had the $4,000 cash from the sale.

Or, he could have traded in the vehicle and reduced the basis in his replacement vehicle by the gain stemming from the trade-in value..........but he probably wouldn't have gotten as much as the $4,000 cash sale to a private person.
Link Posted: 4/13/2011 10:36:46 PM EDT
Woah.. checked back in, and this thread exploded and I'm on my way to bed. I'm toast

It appears as though I really am over the barrel on this truck.

How could I have done things differently to avoid my current position?

What scenario would allow me to dispose of a truck without costing me money? (sounds like a stupid question to most)

I'm putting another truck (the replacement) into service this year. What do I need to do to avoid a repeat of this buggery?

ETA: I'll run through and try to address the responses tomorrow. It looks like I'll be filing for an extension this year.
Link Posted: 4/13/2011 11:03:14 PM EDT




Quoted:



Quoted:



It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.





Which means you have a 0 basis in your truck.





If you sell something for 0 basis for $4000 then you have a $4000 gain.
Look at the bright side. It is a capital gain.











No, it's ordinary income.



Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.



OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.



But, your 50 percent tax on this gain appears incorrect. I didn't know the tax rates were at 50 percent for 2010?






If his basis in the truck is $59 (or anything under $4000) and he sells it for $4000, the gain is a capital gain.





Maybe you misunderstood, but that is what I'm saying.



The truck is a capital asset.





Link Posted: 4/13/2011 11:09:14 PM EDT




Quoted:

Woah.. checked back in, and this thread exploded and I'm on my way to bed. I'm toast



It appears as though I really am over the barrel on this truck.



How could I have done things differently to avoid my current position?



What scenario would allow me to dispose of a truck without costing me money? (sounds like a stupid question to most)



I'm putting another truck (the replacement) into service this year. What do I need to do to avoid a repeat of this buggery?



ETA: I'll run through and try to address the responses tomorrow. It looks like I'll be filing for an extension this year.




Income from any source is still reportable income.



You were right in getting the depr expense and you were right in getting on economic benefit in selling it. Your mistake was not remembering the tax impact of the gain on the sale.





Here are a few options.





Keep the truck in service. Of course you need to weight the economic benefit of $4000, less taxes, vs its continued use in the business.



Distribute it to a partner/shareholder. Not sure want type of biz you are running and the tax consequences would depending on it. Sole, partnership, LLC, corp?



Sell the truck, but remember the tax consequence and put 35% away in a "tax savings account" to be used to pay the taxes when they are due.



Charitable donation. Again your type of biz depends on the tax impact.
BTW, remember an extention does NOT mean you can pay taxes due later. Interest and penalities will still apply. You just get to file your return later. The IRS specifies you send in your estimated taxes due with your extention.
Link Posted: 4/14/2011 12:01:52 AM EDT
You should have bought it personally then rented it to the business.
Link Posted: 4/14/2011 12:35:38 AM EDT
Quoted:

Quoted:
Quoted:
It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.


Which means you have a 0 basis in your truck.


If you sell something for 0 basis for $4000 then you have a $4000 gain.



Look at the bright side. It is a capital gain.





No, it's ordinary income.

Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.

OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.

But, your 50 percent tax on this gain appears incorrect. I didn't know the tax rates were at 50 percent for 2010?



If his basis in the truck is $59 (or anything under $4000) and he sells it for $4000, the gain is a capital gain.  

Maybe you misunderstood, but that is what I'm saying.

The truck is a capital asset.




No, it is section 1245 property and the gain is ordinary income up to the amount of depreciation claimed.  Any excess sales price over the depreciation claimed is capital gain income.

You don't get capital gain treatment for recapture of depreciation because the depreciation was a deduction from ordinary income.  And recapture of depreciation is always first in the pecking order of the gain characterization.

http://www.irs.gov/publications/p544/ch03.html#en_US_publink100072560

Example:

"You file your returns on a calendar year basis. In February 2008, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2008 and $3,200 in 2009. You did not take the section 179 deduction. You sold the truck in May 2010 for $7,000. The MACRS deduction in 2010, the year of sale, is $960 (½ of $1,920). Figure the gain treated as ordinary income as follows.

1) Amount realized $7,000
2) Cost (February 2008) $10,000  
3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160  
4) Adjusted basis (subtract line 3
from line 2)  $3,840
5) Gain realized (subtract line 4
from line 1)  $3,160
6) Gain treated as ordinary income
(lesser of line 3 or line 5) $3,160"
Link Posted: 4/14/2011 12:45:40 AM EDT




Quoted:



Quoted:





Quoted:



Quoted:



It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.





Which means you have a 0 basis in your truck.





If you sell something for 0 basis for $4000 then you have a $4000 gain.
Look at the bright side. It is a capital gain.











No, it's ordinary income.



Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.



OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.



But, your 50 percent tax on this gain appears incorrect. I didn't know the tax rates were at 50 percent for 2010?






If his basis in the truck is $59 (or anything under $4000) and he sells it for $4000, the gain is a capital gain.





Maybe you misunderstood, but that is what I'm saying.



The truck is a capital asset.









No, it is section 1245 property and the gain is ordinary income up to the amount of depreciation claimed. Any excess sales price over the depreciation claimed is capital gain income.



You don't get capital gain treatment for recapture of depreciation because the depreciation was a deduction from ordinary income.



http://www.irs.gov/publications/p544/ch03.html#en_US_publink100072560




Ok, I'm still new at this, but tell me where I'm wrong.





It should be 1231 property because it was used 100% in the business for the last five years, thus the capital gains treatment.



If it was personal property it would fall under the 1245 rules.
Link Posted: 4/14/2011 12:47:01 AM EDT
Quoted:

Quoted:
Quoted:

Quoted:
Quoted:
It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.


Which means you have a 0 basis in your truck.


If you sell something for 0 basis for $4000 then you have a $4000 gain.



Look at the bright side. It is a capital gain.





No, it's ordinary income.

Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.

OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.

But, your 50 percent tax on this gain appears incorrect. I didn't know the tax rates were at 50 percent for 2010?



If his basis in the truck is $59 (or anything under $4000) and he sells it for $4000, the gain is a capital gain.


Maybe you misunderstood, but that is what I'm saying.

The truck is a capital asset.




No, it is section 1245 property and the gain is ordinary income up to the amount of depreciation claimed. Any excess sales price over the depreciation claimed is capital gain income.

You don't get capital gain treatment for recapture of depreciation because the depreciation was a deduction from ordinary income.

http://www.irs.gov/publications/p544/ch03.html#en_US_publink100072560


Ok, I'm still new at this, but tell me where I'm wrong.


It should be 1231 property because it was used 100% in the business for the last five years, thus the capital gains treatment.

If it was personal property it would fall under the 1245 rules.


I completely understand your confusion.

I edited my post to give an example from the IRS publication.

A vehicle is personal property under the Code and falls under section 1245 for depreciation recapture when sold.

Once the depreciation is recaptured, any excess, is taxed at capital gain rates.

ETA:  Section 1245 covers almost all property used in a business unless it is real property (buildings and structural components) and inventories.

Real property falls under section 1250 and inventories fall under sections 471 and 472.
Link Posted: 4/14/2011 12:53:10 AM EDT
Quoted:

Quoted:
Quoted:

Quoted:
Quoted:
It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.


Which means you have a 0 basis in your truck.


If you sell something for 0 basis for $4000 then you have a $4000 gain.



Look at the bright side. It is a capital gain.





No, it's ordinary income.

Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.

OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.

But, your 50 percent tax on this gain appears incorrect. I didn't know the tax rates were at 50 percent for 2010?



If his basis in the truck is $59 (or anything under $4000) and he sells it for $4000, the gain is a capital gain.


Maybe you misunderstood, but that is what I'm saying.

The truck is a capital asset.




No, it is section 1245 property and the gain is ordinary income up to the amount of depreciation claimed. Any excess sales price over the depreciation claimed is capital gain income.

You don't get capital gain treatment for recapture of depreciation because the depreciation was a deduction from ordinary income.

http://www.irs.gov/publications/p544/ch03.html#en_US_publink100072560


Ok, I'm still new at this, but tell me where I'm wrong.


It should be 1231 property because it was used 100% in the business for the last five years, thus the capital gains treatment.

If it was personal property it would fall under the 1245 rules.


Personal property as in non-real property, not non-business assets



Posted Via AR15.Com Mobile
Link Posted: 4/14/2011 12:54:24 AM EDT
Quoted:
Quoted:

Quoted:
Quoted:

Quoted:
Quoted:
It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.


Which means you have a 0 basis in your truck.


If you sell something for 0 basis for $4000 then you have a $4000 gain.



Look at the bright side. It is a capital gain.





No, it's ordinary income.

Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.

OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.

But, your 50 percent tax on this gain appears incorrect. I didn't know the tax rates were at 50 percent for 2010?



If his basis in the truck is $59 (or anything under $4000) and he sells it for $4000, the gain is a capital gain.


Maybe you misunderstood, but that is what I'm saying.

The truck is a capital asset.




No, it is section 1245 property and the gain is ordinary income up to the amount of depreciation claimed. Any excess sales price over the depreciation claimed is capital gain income.

You don't get capital gain treatment for recapture of depreciation because the depreciation was a deduction from ordinary income.

http://www.irs.gov/publications/p544/ch03.html#en_US_publink100072560


Ok, I'm still new at this, but tell me where I'm wrong.


It should be 1231 property because it was used 100% in the business for the last five years, thus the capital gains treatment.

If it was personal property it would fall under the 1245 rules.


Personal property as in non-real property, not non-business assets



Posted Via AR15.Com Mobile


Right.

Link Posted: 4/14/2011 1:02:03 AM EDT




Quoted:



Quoted:





Quoted:



Quoted:





Quoted:



Quoted:



It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.





Which means you have a 0 basis in your truck.





If you sell something for 0 basis for $4000 then you have a $4000 gain.
Look at the bright side. It is a capital gain.











No, it's ordinary income.



Only the portion of the sale proceeds in excess of accumulated depreciation deductions gets capital gain rates.



OP, I didn't run your numbers but you are correct in your understanding, you pay tax on any recapture of depreciation stemming from the sale of the vehicle and it is ordinary income.



But, your 50 percent tax on this gain appears incorrect. I didn't know the tax rates were at 50 percent for 2010?






If his basis in the truck is $59 (or anything under $4000) and he sells it for $4000, the gain is a capital gain.





Maybe you misunderstood, but that is what I'm saying.



The truck is a capital asset.









No, it is section 1245 property and the gain is ordinary income up to the amount of depreciation claimed. Any excess sales price over the depreciation claimed is capital gain income.



You don't get capital gain treatment for recapture of depreciation because the depreciation was a deduction from ordinary income.



http://www.irs.gov/publications/p544/ch03.html#en_US_publink100072560




Ok, I'm still new at this, but tell me where I'm wrong.





It should be 1231 property because it was used 100% in the business for the last five years, thus the capital gains treatment.



If it was personal property it would fall under the 1245 rules.




I completely understand your confusion.



I edited my post to give an example from the IRS publication.



A vehicle is personal property under the Code and falls under section 1245 for depreciation recapture when sold.



Once the depreciation is recaptured, any excess, is taxed at capital gain rates.



ETA: Section 1245 covers almost all property used in a business unless it is real property (buildings and structural components) and inventories.



Real property falls under section 1250 and inventories fall under sections 471 and 472.




I'm taking corp tax right now. Just went back and reviewed those sections.



You are right.



And thank you. When you learn stuff this way you remember it better.
Link Posted: 4/14/2011 1:02:21 AM EDT
Quoted:
You should have bought it personally then rented it to the business.


Wouldn't have made any difference.

He would still have to recapture the depreciation he claimed, or was allowed to claim, as the lessor.
Link Posted: 4/14/2011 1:04:35 AM EDT
No problem Sherrick, tax law can be confusing.
Link Posted: 4/14/2011 1:11:55 AM EDT
Quoted:
No problem Sherrick, tax law can be confusing.


And it doesn't help when the IRS fucks it up every chance they get.

Posted Via AR15.Com Mobile
Link Posted: 4/14/2011 5:28:19 AM EDT
Quoted:
Quoted:
You should have bought it personally then rented it to the business.


Wouldn't have made any difference.

He would still have to recapture the depreciation he claimed, or was allowed to claim, as the lessor.


Nope. He could have paid himself mileage on the vehicle, and that be the end of it.
Link Posted: 4/14/2011 5:56:13 AM EDT
Quoted:
Quoted:
Quoted:
In any case, you should be looking into the tax implications of these things before you make the decisions, it sucks but it's the number one difference between successful businesses and those that are less so.


This makes my blood boil.


In this instance, the OP is paying tax on the recoupment of depreciation deductions he claimed and was reimbursed for when he sold his business vehicle.

ETA:  I suppose he could have leased the vehicle and not had this problem.........but, he wouldn't have had the $4,000 cash from the sale.

Or, he could have traded in the vehicle and reduced the basis in his replacement vehicle by the gain stemming from the trade-in value..........but he probably wouldn't have gotten as much as the $4,000 cash sale to a private person.


How does this justify the government's burden being so big that understanding details of taxes determines success or failure?
Link Posted: 4/14/2011 8:18:42 AM EDT
Quoted:
Quoted:
Quoted:
Quoted:
In any case, you should be looking into the tax implications of these things before you make the decisions, it sucks but it's the number one difference between successful businesses and those that are less so.


This makes my blood boil.


In this instance, the OP is paying tax on the recoupment of depreciation deductions he claimed and was reimbursed for when he sold his business vehicle.

ETA:  I suppose he could have leased the vehicle and not had this problem.........but, he wouldn't have had the $4,000 cash from the sale.

Or, he could have traded in the vehicle and reduced the basis in his replacement vehicle by the gain stemming from the trade-in value..........but he probably wouldn't have gotten as much as the $4,000 cash sale to a private person.


How does this justify the government's burden being so big that understanding details of taxes determines success or failure?


It doesn't.........what I am pointing out is that ordinary income usually results from the disposition of a tangible business asset when ordinary deductions were utilized as that tangible business asset was depreciated every year.

I believe the OP did the best thing business wise when selling the truck for cash.  He is probably ahead overall considering his other two options of leasing and/or trading in the vehicle upon disposition.

In other words, the OP handled this successfully overall IMHO.

But, you are definitely right when you say some transactions are so muddled and gray, as to tax treatment, that it becomes unfair for the ordinary Joe to understand and plan for.
Link Posted: 4/14/2011 8:23:14 AM EDT
Quoted:
It sound like you depreciated your truck down to 0. It would help if you told us what you have as accumulated depr related to that asset.


Which means you have a 0 basis in your truck.


If you sell something for 0 basis for $4000 then you have a $4000 gain.



Look at the bright side. It is a capital gain.



Oops, sorry.  It is ordinary gain income.  


I think FIFY.
Depreciation recapture at your ordinary income rate.
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