Sale of Part of a Depreciable Asset

[Kram BergGold]

My client bought a library of films for 79k which he used in his business. This shows up as a single asset on his depreciation schedule. What happens to the basis and the depreciation if he sells part in 2017 and part in 2018? Is the gross sales price reported in 2017 with no basis or depreciation recapture or do we allocate basis and depreciation recapture between the two years.

[ATSMAN]

Is the intention to sell the video library as a group sale or individual movies?

I think you may want to take a look at installment sales rules.

[TaxGuyBill]

Assuming they are separate sales and not part of a General Asset Account, you allocate the Basis and depreciation between the assets.

[JudyL]

I was thinking like TaxGuyBill too about whether this is a partial disposition of assets in a GAA. You might want to review the list in Pub 946 to see if your scenario fits into one of the criteria for when a GAA can be terminated and when assets can be removed from a GAA.

If this is a partial disposition and the GAA isn't terminated, the way I understand it, the proceeds are reported with a zero adjusted basis against it and there is a component that is potentially taxed as ordinary income. Also, the GAA basis and reserve are kept intact and are unaffected with depreciation continuing to be calculated on the full amount of the GAA until the final disposition. Then in the final year, you will factor in the amount already recaptured. In other words, basis and reserve aren't allocated in the year(s) of partial disposition.