Old F/D Equipment

[Snaggletooth]

Contractor retired 4-5 years ago. He liquidated left-over equipment and supplies to a younger friend, also a contractor.

What is left is virtually fully-depreciated equipment that is junk, hardly worth the cost of loading it up and selling for scrap. As this was s. §1231 property, I still show that he owns it, even though fully-depreciated, and if any of it sells, there is a disposition on Form 4797. So every year, I've been asking him if he's got rid of any of this. I have a list of some 35-40 pieces of equipment.

Among the junk, however, is a 1991 Work Van, fully-depreciated, and today worth maybe some $5000. He hasn't sold it -- in fact I saw it in his garage two weeks ago.

My question: Does there ever come a time when I can stop asking him about this long list of equipment? and whether he still has it? It is annoying to the client and appears to be a waste of time for the most part. I tell him this is "something I have to do" as a preparer.

I realize there might be two versions of an answer, a "purist" answer and a "practical" answer. I would like to hear opinions from as many of you as care to respond.

[BOB W]

Contractor retired 4-5 years ago. He liquidated left-over equipment and supplies to a younger friend, also a contractor.

What is left is virtually fully-depreciated equipment that is junk, hardly worth the cost of loading it up and selling for scrap. As this was s. §1231 property, I still show that he owns it, even though fully-depreciated, and if any of it sells, there is a disposition on Form 4797. So every year, I've been asking him if he's got rid of any of this. I have a list of some 35-40 pieces of equipment.

Among the junk, however, is a 1991 Work Van, fully-depreciated, and today worth maybe some $5000. He hasn't sold it -- in fact I saw it in his garage two weeks ago.

My question: Does there ever come a time when I can stop asking him about this long list of equipment? and whether he still has it? It is annoying to the client and appears to be a waste of time for the most part. I tell him this is "something I have to do" as a preparer.

I realize there might be two versions of an answer, a "purist" answer and a "practical" answer. I would like to hear opinions from as many of you as care to respond.

I had the same situation with a DJ. I asked and asked year after year. Sent him an asset list every year, no response. All of a sudden he gets in financial trouble and is seeking Bankrupsy info. I told him his list of assets, fully depreciated, is a problem. "Oh! lets get ride of them" . He went over the list, and of course most everythink was JUNKED.

So, the moral to this story is> be carefull what you ask for....................

[JohnH]

Maybe it's better to rephrase the question - give them a list of equipment and ask what they still HAVE. If it's untitled equipment and they don't verify that it's still around, just scrap it?

[erchess]

In Short,

a contractor upon retirement sold all business assets of significant value to another contractor but he still has a bunch of fully depreciated stuff that has minimal value even as scrap plus a work van that might bring a $5K sales price. Ron every year asks if he disposed of anything and the client is getting ticked at the questions.

I don't see why he is ticked at the question "Did you sell or trade anything this year?" I ask that question of every taxpayer I work with. I think Ron needs to document that he asked the question for cya purposes. I think Ron needs to keep the list of assets handy. It probably won't ever be needed but it contains all the info he needs if the taxpayer ever does report disposing of something. I would give it to whomever settles the man's estate if he died while I was still in practice and if he were alive when I retired I would give him his list. I also think I might encourage the man to scrap the stuff other than the van and officially convert it to personal use - would not that let Ron close the books on that business and throw the records away say six years later?

[AJsTax]

I would have

converted all of the assets to personal use at the time of the disposal of the business and from that time on there would no questions to ask. If nearly all the equipment had 0 FMV there would no tax implications, just paperwork.

[Snaggletooth]

Convert to Personal

As this was formerly s. 1231 property (mostly 1245), what are the implications of converting to personal use, and how does one accomplish this for tax purposes?

AJ and Erchess, the whole lot is not worth the effort to take to the dump. Except for the van, worth maybe $5K.

This sounds like a good suggestion. I don't know whether he can bail out on taking gains on the van if he sells it, even if it is personal.

Thanks guys...

[Davc]

As this was formerly s. 1231 property (mostly 1245), what are the implications of converting to personal use, and how does one accomplish this for tax purposes?

This sounds like a good suggestion. I don't know whether he can bail out on taking gains on the van if he sells it, even if it is personal.

If all of the assets are past their ADS life, then there are no immediate tax implications, but if any of it is sold down the road by either the current owner or someone to whom it's been gifted, then 1245 recapture applies.