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Depreciation recapture for equipment

sffdib
Level 4

Please let me know what I am missing in calculating capital (loss), and depreciation recapture on 4797 this is all long term. Help please. 

Equipment was purchased for $100,000, depreciation is $10,000, sold for $1000. Capital Gain (loss) is $89,000 ($100,000 - $10,000 depreciation - $1000 sale price). 

Is this considered section 1245 property?

Gain (loss) goes on Part I, form 4797 $89,000?

Recapture goes on Part III line 25b $10,000?

ProSeries Professional is not calculating the anything on page 2 form 4797. 

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sjrcpa
Level 15

Depreciable property used in a trade or business sold at a loss goes on Part 1 of Form 4797.

Depreciation is only recaptured when property is sold at a gain.

Equipment used in a business is 1245 property.


ex-AllStar

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6 Replies 6
TaxReturnPros
Level 3

Sale is $1,000

Remaining Cost Basis is $90,000

Sale $1,000 minus the basis $90,000 = $89,000 loss

As a Long Term Capital Loss, the Loss of $89,000 shows on the tax return.  How the LT Cap Gain Loss applies this year and/or possibly future years depends on the type of tax return:  Personal or Corporation return, etc.? Business and/or Rental property? No matter, there would be no recapture in this case and yes, from your base description, it is Section 1245 property (trade or business property).

rbynaker
Level 11

My first concern would be that this simply does not pass my sniff test.  Was there a related party involved?  Did the equipment get damaged somehow and was sold as scrap?  It obviously wasn't in service for very long if it only had 10% depreciation.  Something that's maybe worth $50K-$70K was sold for $1K?  I smell a disguised gift.

But to answer your question, no depreciation recapture if there's a loss.

TaxGuyBill
Level 14

I agree with Rick ... something about that transaction seem suspicious, and you need to find out why it was sold for such a small amount.

sffdib
Level 4

Equipment was used for 5 years. The numbers that I presented were not actual. I just wanted a simple answer. 

Do we have recapture depreciation?

Is it cap at 25% like real estate?

Where does it go on the form?

Why ProSeries is not calculating page 2 of 4797?

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sjrcpa
Level 15

Depreciable property used in a trade or business sold at a loss goes on Part 1 of Form 4797.

Depreciation is only recaptured when property is sold at a gain.

Equipment used in a business is 1245 property.


ex-AllStar

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TaxGuyBill
Level 14

@sffdib wrote:

 I just wanted a simple answer. 

 


It makes thing simpler when you give us REAL information.  When it comes to taxes, there are too many variables when you use random information that doesn't make sense.