Sale of business property vs Capital Losses

[Absolut]

Why is it that IRS won't allow tax payers to take their capital losses against their capital losses?
I have a Commercial Fisherman who sold his Lobster Boat (fully depreciated) for $160,000.00. He's holding the loan because the other fisherman couldn't get a bank loan to buy is. He received $25,000.00 down and gets one payment every November for $22,500.00. He will receive these payments for 6 years. How come there isn't a way to put it on a shedule D, showing he's only receiving the $22,500.00?

He had a carry forward loss or $2178.00 from 2009 and than had a loss of $64,632.00 from sale of stock. Is there no way to use this loss against the sale?

Thank you everyone.

[Gary2]

You haven't told us what the original price was, so we can't tell how much of the selling price is depreciation recapture and how much is capital gain (and I'm not about to do the math to figure out how much is interest). But the reason the recapture is treated as ordinary income is because the original depreciation was taken against ordinary income - which seems fair.

I've never done an installment sale, let alone opting out of it, but I know that the option of opting out exists. Depending on the breakdown between recapture and capital gain, it may be worth looking at this option.

[taxmom34]

i believe that you can't do installment sale if sold at a loss, only gain.

[Burke]

Why is it that IRS won't allow tax payers to take their capital losses against their capital losses?

What?

I have a Commercial Fisherman who sold his Lobster Boat (fully depreciated) for $160,000.00. He's holding the loan because the other fisherman couldn't get a bank loan to buy is. He received $25,000.00 down and gets one payment every November for $22,500.00. He will receive these payments for 6 years. How come there isn't a way to put it on a shedule D, showing he's only receiving the $22,500.00?

There is. Complete Form 6252, and it will flow to 4797 and Sche D. If he had fully depreciated it, he has a gain of $160,000 because his basis is zero. His payments will include interest and principal. If they don't, you will have to impute the interest. The part that represents the interest goes to Sche B. The gain that represents depreciation (all of it) will be unrecaptured 1250 gain as he receives it, and subject to a maximum tax rate of 25%, but he may pay less than that depending on his overall income and whether any gain is left after applying capital losses.

He had a carry forward loss or $2178.00 from 2009 and than had a loss of $64,632.00 from sale of stock. Is there no way to use this loss against the sale?

Yes, see above. PS: He can opt out of installment sale and report it all in the year of sale, if he wishes.

[Absolut]

Price when he bought it

The price of the boat was $199,916.00 was what he originally paid for it in 02/01/1999.

When he sold the boat, as I stated before, he held the note on it because the fisherman couldn't get the loan himself. So he makes a payment once a year for $22,500.00. I realize he sold it in 2010, but he's not collecting all the money at once, so why should he be taxed on it all in one year?

[Absolut]

6252

Burke I tried doing the 6252 but it gives me this message: You can not use this because the gain does not exceed the sale.

[Gary2]

The gain that represents depreciation (all of it) will be unrecaptured 1250 gain as he receives it

Am I missing something about boats being treated as real property or otherwise being classified as Section 1250 property? I'd expect it to be recaptured 1245 gain, taxed as ordinary income.

[Davc]

Am I missing something about boats being treated as real property or otherwise being classified as Section 1250 property? I'd expect it to be recaptured 1245 gain, taxed as ordinary income.

Agree. Since the boat is 1245 property and the sales price is less than the initial basis the entire proceeds is recaptured as ordinary income in the year of the sale.

[Burke]

Am I missing something about boats being treated as real property or otherwise being classified as Section 1250 property? I'd expect it to be recaptured 1245 gain, taxed as ordinary income.

No, you are correct about the 1250 property. I thought about it as I was driving down the interstate yesterday and thought, "you idiot." 1250 IS real estate. The boat should be 1245 property. But it was fully depreciated, so the gain is the entire amount received. Did he take accelerated depreciation on it? What was it's useful life and was this the period over which it was depreciated? I don't suppose it was sold to a related party?

[Davc]

For 1245 property recapture applies regardless of whether depreciation was accelerated.

[Nashville]

Loss

Absolute, the mindset of "loss" was responsible for all the errant thinking. And this stems from long-held views, particular of clients, that if you take a beating on a sale, it is therefore a "loss." In your case, he gave $200K for the boat and sold it for $160K so in his mind there is a $40K loss. We can't let this kind of thinking enter our heads when trying to report the transaction.

In recent years, I've seen the mindset in depressed property values. Bought in 1960 at $20K, worth $300K in 2005, but had to sell in 2010 at $240K. Seller thinks he has "lost" $60K because he sold for less than what it was worth 5 years ago.

If your boat was fully depreciated, the sale at a single $1 would constitute a gain of $1 under sec. 1231. And forget any thought of "capital" if the gain is entirely recapture for section 1245 property.

[Burke]

The thing that puzzles me is how did he fully depreciate a $200K commercial fishing vessel in 10 years?

[outwest]

Using asset class 00.28 for "marine vessels"

(which is 10 years) comes to mind. Probably 179 as well.