Bought It Used, From a Person: Proving Basis on Private-Party Equipment & Vehicles (2026)

Published: August 4, 2026 · Reading time: 11 min

TL;DR: Buying business equipment from an individual is completely legitimate and the deduction is real — used property qualifies for depreciation, Section 179, and 100% bonus depreciation on the same terms as new. What is different is the evidence. Your deduction is your cost basis, and a stranger on Marketplace does not send invoices. Build the record at the point of sale — bill of sale, traceable payment, serial-number photo, listing screenshot — because for a vehicle the Cohan rule is switched off: the regulations say §274(d) supersedes it and that "amount" for listed property includes the cost of acquiring the item. And keep it far longer than three years: a five-year asset bought in 2026 needs its file until roughly 2035. One exception with no workaround — property bought from a relative qualifies for neither §179 nor bonus.

Freelancers buy used constantly, and for good reason: a $9,000 enclosed trailer off Facebook Marketplace does the same work as a $16,000 new one. The tax treatment is identical too. The only thing that changes is who is responsible for producing the paperwork, and the answer is entirely you.

This guide is about assets bought from an individual. If instead you are moving property you already owned into the business, that is a different transaction with a different basis rule — see converting personal property to business use.

Why basis is the whole ballgame

Every deduction that flows from an asset — annual depreciation, a §179 election, bonus depreciation, and eventually the gain or recapture when you dispose of it — is computed from one number: your cost basis under §1012. It is what you paid, plus the costs of acquiring and placing the asset in service.

That single number does not stop mattering when the deduction is taken. It keeps mattering:

• Every year of the recovery period, as the basis of the depreciation schedule
• On any change in business-use percentage
• On sale, trade-in, abandonment, or conversion to personal use — see retiring and abandoning business assets

Which is why a missing purchase record is not a one-year problem. It is a problem in every year the asset touches your return.

What it is worth in cash

Marcia buys a used enclosed trailer for $9,000 in cash from a private seller and elects §179 on the whole amount. At a 24% marginal rate:

A business deduction reduces both income tax and self-employment tax — but you cannot simply add 24% and 15.3% together, because the SE tax saving shrinks the deductible-half-of-SE-tax adjustment and the QBI deduction, both of which push taxable income back up:

That is the amount at risk if she cannot produce a basis record — an effective rate of about 32%, not the 38% the naive sum suggests. The same arithmetic, worked at a different rate, is in tax deduction vs. tax credit.

What a bill of sale needs on it

There is no prescribed form. There is a set of facts a document has to establish, and a two-copy sheet of paper the seller signs at the tailgate does it:

1. Date of sale
2. Seller's full name and address — the single item most often missing, and the one that makes the document verifiable
3. Specific description: make, model, year, and serial number or VIN
4. Amount paid, in figures and words
5. Method of payment
6. Both signatures

Two additions worth the extra fifteen seconds: a line describing condition, and for a vehicle the odometer reading at the date of sale. The odometer is the anchor for every business-use percentage you will compute afterwards, and reconstructing it later is guesswork.

The IRS accepts handwritten documentation — content matters, not format. The general standard is covered in are handwritten receipts valid. What makes a private-party purchase harder is not the handwriting; it is that the counterparty vanishes.

The corroboration that makes it credible

A self-written document supporting a $9,000 deduction is stronger when something independent agrees with it. Three cheap corroborators:

The payment trail. Zelle, a bank transfer, a cashier's cheque, or a card payment produces a record that matches your bill of sale in date and amount, created by someone who has no stake in your tax return. If the seller insists on cash, withdraw the exact amount the same day — a $9,000 ATM or teller withdrawal on the purchase date, annotated at the time, is materially better than nothing.

Dated photographs. The item, and a close-up of the serial number or VIN plate. This proves the asset exists, that it is the one described, and that you had it.

The listing screenshot. The Marketplace, Craigslist, or auction listing showing the asking price and condition corroborates that your recorded price was a market price. If an examiner's instinct is that $9,000 seems high for that trailer, a listing at $9,500 settles it in one screenshot.

Together with the bill of sale, these four documents cost about two minutes at the point of sale and are effectively impossible to assemble later.

For vehicles, the Cohan rule will not save you

This is the point that separates a private-party vehicle purchase from every other undocumented expense.

The Cohan rule lets a court approximate a deduction where the taxpayer clearly incurred an expense but the records are imperfect — the fallback discussed in the Cohan rule and lost receipts. It does not apply to the categories listed in IRC §274(d), and listed property — which includes passenger automobiles — is one of them.

Two specifics from the regulations, both directly on point:

• The elements to be substantiated for listed property include "the amount of each separate expenditure with respect to an item of listed property, such as the cost of acquisition".
• "This limitation supersedes the doctrine found in Cohan v. Commissioner… Section 274(d) contemplates that no deduction or credit shall be allowed a taxpayer on the basis of such approximations or unsupported testimony of the taxpayer."

So a truck bought for cash from a stranger with no bill of sale has, for tax purposes, no provable basis. Not a reduced one — an unprovable one. Your own credible testimony about what you paid is expressly not enough. See listed property rules for the wider category.

One partial escape: if you use the standard mileage rate rather than actual expenses, your annual deduction does not run off basis. But it does not make the problem go away — the rate has a depreciation component that reduces basis year by year, and you will need that basis figure the day you sell or trade the vehicle.

Used property, §179, and the relative you cannot buy from

Good news first: used property qualifies.

• Section 179 has always applied to used equipment.
• Bonus depreciation applies to used property too, since the TCJA replaced the old "original use" requirement — the test is that it is the first time you have used it.

Now the exception, which has no workaround. §179(d)(2) denies the election where "the property is not acquired from a person whose relationship to the person acquiring it would result in the disallowance of losses under section 267 or 707(b)", and bonus depreciation carries a parallel restriction. For §179 the family group is narrowed to spouse, ancestors, and lineal descendants.

In plain terms: buying your father's work truck at a fair price, with a proper bill of sale and a bank transfer, still fails both §179 and bonus. You depreciate it normally instead. Buying an identical truck from a stranger qualifies for both. Price and paperwork do not cure the relationship.

Sales and use tax goes into basis, not onto Line 23

Private-party purchases are where this trips people most, because there is often no tax collected at the point of sale and use tax surfaces later at registration.

The Schedule C instructions for Line 23 are explicit that sales tax on property purchased for use in your business is not deductible there — it is capitalised into the asset's basis. So the use tax you pay when titling that trailer increases the §179-eligible amount rather than becoming a separate deduction. Same money, different line, and recording it with the purchase is what keeps it from being lost.

Delivery, freight, and the cost of getting the asset ready for service belong in basis too.

How long the file has to live

The three-year rule everyone remembers is the general assessment period, and it is the wrong answer for a depreciated asset. The record supports every return that uses it.

Suppose Marcia depreciates the trailer normally instead of electing §179. Trace it through:

Nine years of retention, from a purchase that took ninety seconds.

And if you still own the trailer in 2035, the clock has not started. Basis drives the gain and the recapture on disposal, so the file has to outlive the asset by three more years past the return that reports the sale. The general retention framework is in how long to keep receipts for the IRS.

A §179 or bonus election does not shorten this. It makes the deduction front-loaded, not shorter: the whole write-off lands in 2026, which concentrates a large number on a single return and gives an examiner one conspicuous line to ask about — and the basis figure still governs the recapture whenever you eventually dispose of the trailer, so the file outlives the deduction by years either way.

When you genuinely have nothing

It happens — an asset bought years ago, before you were organised. Salvage what exists, in this order:

1. The payment record. A bank or app transaction of the right size on the right date is the strongest surviving evidence.
2. The listing or a comparable. Dated screenshots of completed sales for the same model and condition establish that the amount you claim is plausible.
3. The title or registration. For a vehicle, this proves acquisition and date, and often shows a declared purchase price.
4. A contemporaneous-adjacent note. A calendar entry, a message thread with the seller, a photo with metadata.
5. A memo written now, dated honestly as written now, explaining what you bought, when, from whom, and what evidence supports the figure.

For non-listed equipment this reconstruction can support a deduction. For listed property it cannot, because §274(d) has removed the approximation route entirely. Know which category you are in before you decide how hard to fight for it.

Common mistakes

• Leaving without a bill of sale. The seller will sign at the tailgate. They will not reply to a message in April.
• Paying cash with no matching withdrawal. A withdrawal of the exact amount on the exact date is your only corroborator.
• Recording the price but not the seller's name and address. An unverifiable document is a weak one.
• Expecting Cohan to rescue a vehicle. The regulations expressly supersede it for listed property.
• Buying from a parent, child, or spouse and claiming §179 or bonus. Both are denied, regardless of price.
• Deducting the use tax on Line 23. It belongs in basis.
• Discarding the file after three years. The clock runs from the last return that uses the number, not the year of purchase.
• Skipping the odometer on a vehicle bill of sale. Every future business-use percentage starts there.

Frequently Asked Questions

Can I deduct equipment I bought used from a private seller with no receipt?

The purchase is deductible in principle — used property qualifies for depreciation, for Section 179, and for bonus depreciation on the same terms as new. The problem is evidentiary, not legal. Your deduction is measured by your cost basis, and cost basis is a number you have to be able to prove. Without a receipt you need a substitute record built from what does exist: a bill of sale you write and both parties sign, the bank or app record of the payment leaving your account, dated photographs of the item with its serial number, and the listing screenshot. Assemble that at the time of purchase and you have a defensible file. Try to assemble it three years later from memory and you have an estimate, which for a vehicle is worth nothing at all.

What should a bill of sale include for a business asset?

Six things, at minimum: the date of the sale; the seller's full name and address; a specific description of the item including make, model, and serial or VIN; the amount paid and the currency; the method of payment; and both parties' signatures. Adding the item's condition and a line stating the sale is as-is costs nothing and makes the document read as a genuine contemporaneous record rather than something reconstructed. For a titled vehicle, the odometer reading at the date of sale belongs on it too, because it is the starting point for every business-use percentage you will compute afterwards.

Does used equipment qualify for Section 179 and bonus depreciation?

Yes to both, with one significant exception. Section 179 has always applied to used property. Bonus depreciation has applied to used property since the TCJA removed the original-use requirement, provided it is the first time you have used the property. The exception is related parties: Section 179(d)(2) denies the election for property acquired from a person whose relationship would disallow losses under Section 267 or 707(b), and bonus has a parallel restriction. Buying your father's work truck therefore fails both, no matter how arm's-length the price was. Buying an identical truck from a stranger qualifies for both.

How long do I have to keep the purchase record for a depreciated asset?

Far longer than the three years most people assume. The record supports every year of depreciation, so it has to survive until the statute of limitations closes on the last return that used it. A five-year asset bought in 2026 is depreciated across six tax years through 2031 under the half-year convention, that return is filed in 2032, and three more years takes you to 2035 — and longer if you sell the asset later, because the same basis figure drives the gain and the depreciation recapture. The practical rule is to keep an asset's purchase file for the life of the asset plus at least three years after the final return that touches it, including the year you dispose of it.

Does the Cohan rule let me estimate what I paid for a used vehicle?

No. The Cohan rule allows a court to approximate a deduction where records are imperfect, but it is expressly switched off for the categories in section 274(d), and listed property is one of them. The regulations state that the section 274(d) limitation supersedes Cohan and that no deduction shall be allowed on the basis of approximations or the taxpayer's unsupported testimony. They also make clear that the amount to be substantiated for listed property includes the cost of acquiring the item. A vehicle bought with no record and no bill of sale therefore has no provable basis, and a credible estimate does not fix it.

Authoritative References

• IRS — Publication 946, How to Depreciate Property
• IRS — Publication 583, Starting a Business and Keeping Records
• IRC §179 — Election to Expense Certain Depreciable Business Assets
• IRC §1012 — Basis of Property: Cost
• Treas. Reg. §1.274-5T — Substantiation Requirements (Temporary)
• IRS — How Long Should I Keep Records?
• IRS — Instructions for Schedule C (Form 1040)

The File Has to Outlive the Purchase by Nine Years

A private-party purchase gives you one chance to create the record, and it lasts about ninety seconds — the time between handing over the money and the seller driving away. Everything after that is reconstruction, and for a vehicle, reconstruction is not an option the regulations leave open.

CentSense scans a bill of sale, a serial-number photo, and a listing screenshot into one searchable, dated archive from your phone before you leave the kerb, so the asset's file exists from the moment it becomes yours. Start free with 10 AI scans a month, no credit card; the Solo plan ($5/month) adds unlimited scanning and mileage tracking.

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This article is educational and not tax advice. Depreciation elections, related-party rules, and state use tax treatment are fact-specific. Confirm current rules at irs.gov and consult a qualified tax professional.