You Make the Call - Feb. 15, 2024

Question: Marcus, a sole proprietor, has been operating a successful bakery for the last few years. He has a high demand for his delicious cookies, and he would like to expand the business by offering delivery services. Marcus has a personal van that he would like to convert into the bakery’s delivery vehicle. Does the vehicle’s title need to be changed to the business’s name to contribute it to the business and begin depreciating it?

Answer: No, Marcus does not need to change the vehicle title to the name of the business. Because sole proprietorships are not a separate business entity, any contributed business assets are not separate from the owner’s personal assets, meaning no taxable transfer has occurred. The van’s basis for depreciation purposes is the lesser of the amount paid for it, or its fair market value when contributed [Reg. 1.167(g)-1].