Equipment Basis for Depreciation Purposes

[duanecpa]

I have a client that purchased a piece of equipment several years ago for $17,500.

In 2010 they placed the equipment in service with one of their companies. The equivalent value in 2010 was $14,500 (i.e., if they were to purchase the same piece of equipment in 2010 - it would cost $14,500.)

What is the basis for the equipment for depreciation purposes in 201?

Thank you.

[MilTaxEA]

Assuming you're talking about a Schedule C company (i.e., not transfering asset into a separate entity), the basis for depreciation is the lesser of fair market value or their adjusted basis on the date they place the asset into business use. In your case, that would be MIN($17.5k, $14.5K) = $14,500 depreciation basis.

Also, I should mention that you use the fair market value of the asset you currently have in its current condition. So, if it is in "used" condition, would it still cost $14.5k to purchase? If it is worth less, then that lesser value would be used for FMV. Just be sure to document how you came up with the FMV and adjusted basis.

[MAJ]

FMV - But from What Company?

FMV of the date placed in service. Just curious. You stated It was purchased several years ago and then ONE of their companies placed it into service. Is this the same company that purchased it? What was the COST Basis to the company that placed it into service? If Company 1 purchased it and then company 2 put it in service a few years later - where was it? What did company 1 do with the purchase cost the year it was placed into service? There are a few loose ends here... A $17,500 piece of equipment isn't purchased these days just to sit around.. At least - not normally!!

I have a client that purchased a piece of equipment several years ago for $17,500.

In 2010 they placed the equipment in service with one of their companies. The equivalent value in 2010 was $14,500 (i.e., if they were to purchase the same piece of equipment in 2010 - it would cost $14,500.)

What is the basis for the equipment for depreciation purposes in 201?

Thank you.