How is the donation of a business vehicle, with original cost fully expensed through bonus depreciation, reflected on Form 1120S for an S Corporation?
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When an S corporation donates a business vehicle whose entire original cost was fully expensed through bonus depreciation, the tax treatment and reporting on Form 1120-S are governed by the interplay of the charitable contribution rules (IRC §170), depreciation recapture rules, and the mechanics of S corporation pass-through reporting. Here’s a step-by-step explanation of how this is reflected on Form 1120-S for the 2025 tax year:
1. Determining the Charitable Contribution Deduction
a. Basis of the Donated Vehicle- If the vehicle’s entire cost was expensed via bonus depreciation (i.e., 100% or 80%/60%/40%/20% depending on the year placed in service), its adjusted basis for tax purposes is $0 at the time of donation. This is because bonus depreciation reduces the basis of the asset to zero in the year it is claimed.
b. Amount of Deduction- Under IRC §170(e)(1)(A), the deduction for a charitable contribution of property is generally the lesser of fair market value (FMV) or the taxpayer’s adjusted basis in the property.- Since the adjusted basis is $0, the deduction for the charitable contribution is also $0, regardless of the vehicle’s FMV at the time of donation.
c. Special Rule for Vehicles- If the vehicle is a “qualified vehicle” (motor vehicle, boat, or airplane) and the claimed value exceeds $500, additional substantiation and reporting rules apply, but the deduction is still limited to the adjusted basis, which is $0 in this case.
2. Depreciation Recapture
- Since the entire cost was deducted as bonus depreciation, there is no remaining basis to recapture as ordinary income under IRC §1245 or §280F. The recapture rules apply when the property is sold or otherwise disposed of for more than its depreciated basis, but here, the basis is already zero, and the charitable deduction is zero.
3. Reporting on Form 1120-S
a. Schedule K, Line 12a (Charitable Contributions)- The S corporation reports the charitable contribution on Schedule K, line 12a. In this case, the amount reported is $0, since the deduction is limited to the adjusted basis.
b. Schedule K-1, Box 12 (Charitable Contributions)- Each shareholder’s Schedule K-1, box 12, will show their pro rata share of the charitable contribution deduction, which is $0.
c. Disposition of the Vehicle- The disposition of the vehicle is not reported as a gain or loss on Form 1120-S, because the amount realized (FMV, but not received in cash) minus the adjusted basis ($0) would be the FMV, but since it is a charitable contribution, the gain is not recognized. There is no gain or loss to report because the deduction is limited to basis, and the basis is zero.
d. Depreciation Recapture Reporting- No depreciation recapture is required because the basis is zero and the deduction is zero. If there were any recapture, it would be reported on Form 4797 and passed through to shareholders, but in this scenario, there is none.
4. Required Attachments and Disclosures
- If the claimed value of the vehicle exceeded $500, Form 8283 (Noncash Charitable Contributions) must be completed and attached to the return, even though the deduction is zero. The corporation should also provide a copy of Form 8283 to each shareholder.
- The corporation must keep records substantiating the donation, including the contemporaneous written acknowledgment from the charity.
5. Shareholder Basis Adjustments
- Shareholders do not reduce their stock basis for the charitable contribution, since the deduction is zero.
6. Summary Table of Reporting:
7. Conclusion
The donation of a business vehicle by an S corporation, where the vehicle’s entire cost was expensed through bonus depreciation, results in a $0 charitable contribution deduction. This is reported as $0 on Form 1120-S, Schedule K, line 12a, and on each shareholder’s Schedule K-1, box 12. No gain, loss, or depreciation recapture is reported, and no adjustment to shareholder basis is required. If the FMV exceeds $500, Form 8283 must still be completed and attached, even though the deduction is zero.
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