Rebate for Asset Purchased in Prior Year

[mbigelow]

I have a client who purchased an asset at the end of 2015 and wanted to take the full 179 deduction for it. Partway through 2016, she received a $4,000 rebate on the item. I understand that the asset and accumulated depreciation should be lowered by the $4,000 and ordinary income of $4,000 applies but do not know how to make this happen on the tax return and the software (I use ATX). I'm thinking I could manually reduce the asset value and the accumulated depreciation and list the $4,000 as other income on page 1 of the 1065, but there may be a better way. Suggestions?

[taxea]

Amend the 179 in the year it was taken.

[mbigelow]

Amend the 179 in the year it was taken.

Even though the rebate was not received until the following tax year?

[Roland Slugg]

The recovery of an amount deducted in an earlier tax year is included in a taxpayer's income in the current (i.e. recovery) year. There is an exception if the recovered amount deducted in any prior taxable year did not reduce the amount of tax in that prior year (Code §111(a)), but that was probably not the case with your client.

If it's a Schedule C business, I'd report the recovery on line 6, and if it's a corporation, I'd report it on line 10 of those respective forms.

[Kram BergGold]

Agree with Roland

If section 179 was claimed on 100% of the asset, then the $4,000 is income on the form the deduction was claimed.