[Nancy]

Don,

Thanks for the compliment about being able to understand my explanations. I only hope I don't make them so simple as to obscure certain points and, on the other hand, use terms that aren't widely recognized. Example, upon re-reading my answer about recapture depreciation, I used the term like-kind exchange. Which is the term I use, but I really should have said "trade-in" to make that answer more understandable. I use like-kind because that rule applies to more than just cars. So when I say the depreciation recapture can be rolled into the basis of a replacement car, that is under the like-kind exchange rules. Which means trade-in. It occurs to me that someone might think they can private-sale the car then replace it in the same year and get that treatment. It must be a single trade-in transaction, not two distinct transactions. I hope that is more clear.

For your situation, yes, you can carry back losses. However, Section 179 in and of itself cannot create a loss since it is limited to a maximum, $24000 for 2002, or taxable income. You cannot take net income below zero with a Section 179 deduction. However, when you can't take 179 because of this you end up having a larger depreciable basis so therefore more depreciation. That depreciation DOES create a loss that can be carried back. This also applies to the 30% bonus depreciation. Just not the 179 deduction.

With limited understanding of your specific circumstances, generally if you have zero profit, you start with the 30% bonus on the car then apply the first year depreciation of 20% to the remaining, creating a loss that can be carried back.

If you do not place the car into service by this Tuesday (assuming the corporation has a December 31 year-end), and it sounds like you won't be able to since it's still sitting in the railyard, you will do this for the 2003 tax year.

Nancy