A business has a vehicle (fully depreciated) that gets totaled in a wreck.
The insurance company offers them either $9,000 for the vehicle OR $7,000 and the business keeps the vehicle.
The company decides to keeps the vehicle and also pays $1,500 to a repair shop to fix it.
Is the new basis of the vehicle $3,500 ($2,000 plus $1,500) OR $0 since it was fully depreciated.
Or maybe it is something different.
Thanks.

Let's look at the elements of this


A business has a vehicle (fully depreciated) that gets totaled in a wreck.

The insurance company offers them either $9,000 for the vehicle OR $7,000 and the business keeps the vehicle.

So you have a realisation of an asset which represents a profit on disposal. The net realisation is $5500


The company decides to keeps the vehicle and also pays $1,500 to a repair shop to fix it.
Is the new basis of the vehicle $3,500 ($2,000 plus $1,500) OR $0 since it was fully depreciated.
Or maybe it is something different.



The alternative view is the vehicle has been disposed of for a $7000 profit and you have acquired an asset for $1500 cash. I think this might be the IRS view