179 investment credit. What happens if you sell the machine?

Two years ago, I bought a single spindle Swiss style lathe with live tooling and took advantage of the write off of 100% of the purchase price against taxes. I love the machine and it has done a great job for me.
Now that I know more about the capabilities of these machines, I can make a more informed purchasing decision and I want the same machine except with twin spindles. Since I make my own parts, and am not changing set ups on a daily basis (the current part has been running for 3 weeks) this is an ideal machine.
I do not need to add another machine, just replace the one that I have.

Have any of you run into this problem? I understand that the full depreciation comes back home to roost, but in what form? Any input appreciated.

Lee (the saw guy)

My understanding is that you pay taxes on the sale. That is why many businesses re-invest the money.

Big B

You pay income tax on the sale price. My recommendation would be to trade in your existing machine, if possible.

Big B is right. You have to recapture the full sale price and pay tax on it as regular income.

An accountant or tax lawyer will likely tell you to trade the machine rather than selling it. Your depreciable basis in the new machine will be reduced by whatever amount you get on trade in since that portion has already been written off, but you'd still be able to depreciate and/or expense the difference.

A friend here who passed away about a year ago owned a 100K sq ft shop with 80+ cnc's and a full complement of support equipment. He was a fanatic about machine and facility maintenance, and his shop looked more like a showroom than like a working shop. He was always updating machines because, as he told me once, He loved new and shiny things

He never, ever sold a machine. Always traded. Even if he was replacing a 15 yr old machine, he would trade rather than sell the old one. He said it simplified his tax situation, and the little bit of money he lost by trading rather than selling was always less than the taxes he would have paid on recapture since that money would end up taxed at the marginal rate. Due to the condition of his machines, he could get good trade allowances since dealers knew they could turn them over quickly.

IIRC, there is a "Like Kind" provision, where the IRS allows you to sell an item, and buy a similar item, thus avoiding the recapture.

Thanks guys.
You are giving me exactly the information that I was wanting to hear. I have a Ganesh CV and the dealer has the twin spindle version of it (CS). Relatively easy learning curve, all of the tooling fits, and the beauty of these units is that the handwheel can be placed in MDI, and you can walk through the entire program (under power, making a part) totally under your control to stop and say "oh oh...I'm gonna run into the next tool on retract".
He is happy to take a trade-in.

You have made my accountant very happy

Lee (the saw guy)

I'm pretty sure that if you sell the machine, you can buy another one and do a section 179 on it to offset the recapture on the sold machine.

Big B