Tax

If you are a sole proprietor and considering converting a business vehicle to personal use, it’s important to understand the tax consequences before making the switch.

While the conversion itself may appear simple, the tax impact can arise either immediately or later—and sometimes in unexpected ways.

If you used the IRS standard mileage rate for the business vehicle, the conversion to personal use is generally not a taxable event. But depreciation is built into each mileage deduction (for example, 35 cents of the 72.5-cent 2026 rate counts as depreciation).

When you later sell the vehicle, you must calculate a gain or loss based on the vehicle’s adjusted business basis. Many taxpayers overlook the fact that a deductible business loss may still be available years after conversion. Importantly, only the business portion of the loss is deductible, and any gain attributable to the business portion is taxable.

By contrast, if you used the actual expense method—especially with bonus depreciation or Section 179 expensing—the rules are less forgiving. A drop in business use to 50 percent or less triggers Section 280F recapture immediately.

This requires you to recompute depreciation using the straight-line method and pay tax on any excess previously deducted. Later, when you sell the vehicle, you must again calculate gain or loss based on the adjusted basis. In these cases, converting the vehicle creates a two-step tax consequence: recapture now, and potential gain or loss later.

One final caution: selling the vehicle to a related party (such as a spouse, parent, child, or sibling, or a corporation you control) can permanently disallow a loss deduction. To preserve potential tax benefits, make your sale to an unrelated third party.

If you want to discuss converting your business vehicle to personal use, please call me directly at 408-778-9651  

• By Leon Clinton
• March 6, 2026

If you donate clothing or household goods to charity, there’s an IRS trap you need to know about.

In a recent Tax Court case, a taxpayer lost a $6,760 charitable deduction—not because the donations were improper, but because his documentation failed to meet strict technical requirements. The court didn’t question his generosity. It denied the deduction because the receipts and Form 8283 were incomplete.

Here’s the key issue: For non-cash donations over $250, you must obtain a contemporaneous written acknowledgment from the charity. For donations over $500, you must also maintain detailed records showing what you donated, when you acquired the items, and their cost or basis. Form 8283 must be completed accurately, including donation dates and fair market values.

Generic receipts that say “miscellaneous household items” are not enough. And once an audit begins, you cannot fix missing documentation afterward. The deduction is simply lost.

The safest approach is proactive. Before donating, prepare a detailed list of items, including descriptions and estimated values; take photographs; and provide the list to the charity so it can reference the list in its acknowledgment. Keep all supporting records with your tax files.

The bottom line: Good intentions are not sufficient. With charitable deductions, documentation is everything.If you want to discuss donations of clothing and household goods, please call me directly at 408-778-9651.

• By Leon Clinton
• March 4, 2026

Big Beautiful Bill Act (OBBBA) permanently eliminated the qualified bicycle commuting reimbursement, ending a small but symbolic incentive for employees who bike to work.

Congress created the benefit in 2009 to encourage bicycle commuting. Employers could reimburse employees for bicycle purchases, repairs, improvements, and storage when employees regularly rode a bicycle between home and work. 

The benefit applied only to personal, pedal-powered bicycles. It excluded e-bikes and bike-share programs. Employees also had to rely on biking for a substantial portion of their commute, a standard the law never clearly defined.

The rules limited the benefit’s reach. Employers could not offer bicycle reimbursement alongside other transportation fringe benefits, such as transit passes or parking. The reimbursement capped out at $20 per month, or $240 per year, and Congress never adjusted that amount for inflation.

Despite its small size, the benefit delivered meaningful tax savings. Employees excluded the reimbursement from income and payroll taxes. Employers deducted the cost. That combination made the benefit attractive, even if it mainly appealed to committed cyclists only.

The Tax Cuts and Jobs Act disrupted the arrangement in 2017. From 2018 through 2025, employers could still reimburse bicycle commuting costs, but employees had to treat the payments as taxable income. Employers, however, could still deduct the reimbursements. Congress flirted with reinstating the tax-free treatment in 2020 and 2021, but those efforts went nowhere.

OBBBA finished the job. Starting in 2026, bicycle commuting reimbursements are taxable wages for employees, and employers lose the deduction entirely. Employers cannot even treat the payments as deductible compensation, which creates a rare double-tax hit.

Meanwhile, Congress left larger transportation benefits untouched. Employers may still provide tax-free transit passes and parking benefits of up to $340 per month in 2026, although they cannot deduct those costs.

If your business reimburses bicycle commuting expenses—or plans to do so—you should revisit that policy now. If you want my help, please call me on my direct line at 408-778-9651

• By Leon Clinton
• February 27, 2026