Lost everything in fire - How to account for loss?

[Unregistered]

I have a new client that is a self employed mechanic. He had a fire in his shop and lost everything. After review of his records I noticed that he never depreciated (wrote off) the tools that he started the business with (purchased prior to starting his own company). His insurance policy only paid for $20,000 in tools. His loss including the tools that were never written off was close to $45,000 (net $25,000 unreimbursed). How should this be accounted for?

[Brian EA]

I have a new client that is a self employed mechanic. He had a fire in his shop and lost everything. After review of his records I noticed that he never depreciated (wrote off) the tools that he started the business with (purchased prior to starting his own company). His insurance policy only paid for $20,000 in tools. His loss including the tools that were never written off was close to $45,000 (net $25,000 unreimbursed). How should this be accounted for?

Depending how old the tools are , he can go back to his vendors and ask for a statement of his purchase.

[veritas]

I would suspect your client aquired those tools prior to opening while working for other shops as an employee. I have never seen a mechanic/employee who did not write off their annual tool purchases.

[Unregistered]

I would suspect your client aquired those tools prior to opening while working for other shops as an employee. I have never seen a mechanic/employee who did not write off their annual tool purchases.

I dont thing he realized he could. I am getting copies of old returns to confirm that he indeed did not write them off. Because of the insurance claim, he had to do a great deal of work valueing all of his tools. I think we have a good basis for the amount of the loss, I just need to know the best way to go about it. At a miniumum he should be allowed a casualty loss but I hoping there is support to take it as a loss on the company.

[Gretel]

Even if he brought his own tools into the business, he still could depreciate them, just not use Sec.179.

For calculating his basis you need to figure in depreciation allowed, but not taken. I had a client like this. You have to file form 3115 to catch up all depreciation not taken. It's a pain in the butt though.

[JON]

Casulty loss

is the FMV before vs FMV after or your cost basis which ever is less. If you have a gain from insurance proceeds you have 2 years to replace with "like" property...

Right...

[Unregistered]

Even if he brought his own tools into the business, he still could depreciate them, just not use Sec.179.

For calculating his basis you need to figure in depreciation allowed, but not taken. I had a client like this. You have to file form 3115 to catch up all depreciation not taken. It's a pain in the butt though.

Why not just contribute the assets as of the beginning of the year. This would eliminate any previous depreciation problems. They would be deemed personal assets prior to contribution which would not be eligable for depreciation. What do you think?

[Gretel]

I don't think this is a good idea. Basis is lower of cost or FMV. Seems to be some years ago when T/P started using tools and FMV decreased over the years.

[Unregistered]

2005 Form 1041 Estate Return?

Are Estate returns deemed to distribute all income each year? For some reason my software is treating the trust like a simple trust. We were hoping to simply pay the tax at the trust level. The trust will be closing this year.