Abanonment or Obsolete Asset

[S T]

In TB page 9-21 has abaondonment of an asset.

Question, Schedule C business has old computers placed in service 1996, no section 179. Fully depreciated. -0- basis. Just place -0- on 4797 cost 1000 depreciation 1000. -0- gain. Could you discard with no recapture? Same question except with a 100% business vehicle that is no longer operable and you actually have to pay to have it towed to the salvage yard?

Would like to remove from the depreciation schedule if possible.

Thanks,

Sandy

[OldJack]

I agree with your reporting on 4797 and I usually note "scrapped" in the description. Recapture in this case is not required and would have no effect as if you did recapture something it just creates a ordinary loss deduction on the write-off that would offset the ordinary income recapture.

[ChEAr$]

old computer

In TB page 9-21 has abaondonment of an asset.

Question, Schedule C business has old computers placed in service 1996, no section 179. Fully depreciated. -0- basis. Just place -0- on 4797 cost 1000 depreciation 1000. -0- gain. Could you discard with no recapture? Same question except with a 100% business vehicle that is no longer operable and you actually have to pay to have it towed to the salvage yard?

Would like to remove from the depreciation schedule if possible.

Then just remove it. I wouldn';t even bother to report anything on 4747. It's a zero event.
And the towing expense is an ordinary expense under "miscellaneous" on page 2
of schedule c.

[OldJack]

Then just remove it. I wouldn';t even bother to report anything on 4747. It's a zero event.

Well... the reason I report the item on form 4797 is that it is a disposition of an asset that has changed (especially if a corporation balance sheet on page 4 of the tax return) and the IRS can see that the asset and accumulated depreciation has changed from prior year.

However, in this case it is a 1040 Sch-C and there is no page 4 balance sheet, but then I always attach a copy of the depreciation schedule each year to the 1040 even though the IRS doesn't want it. I attach the depreciation schedule in case I drop dead and the next tax preparer will need the info. Also ChEAr$, I don't like you calling me every time you take one of my clients. After all. I am older than dirt.

[veritas]

Old accountants never die.....

They are just wriiten off.

[jainen]

Some accountants die

>>Old accountants never die.....<<

Some accountants die. They drown in red ink.

[Skate1968]

Well... the reason I report the item on form 4797 is that it is a disposition of an asset that has changed (especially if a corporation balance sheet on page 4 of the tax return) and the IRS can see that the asset and accumulated depreciation has changed from prior year.

You're very thurough. I've never seen that done.

...I attach the depreciation schedule in case I drop dead and the next tax preparer will need the info...

And you're very kind.

I've heard of one firm telling the other firm, "Oh we lost the depreciation records." As if the data file was accidentally deleted from a hard drive, no backup existed and the paper copy was also lost.

I once took a job to do corp returns. I soon learned that these people had been witholding payroll taxes and not filing 941s nor paying 941 tax due-- for years. I told them that i had never seen such a thing before. And that I would gladly turn over all of my workpapers to whomever might help them with such an issue.

[S T]

Schedules

Thanks Old Jack,

I also attach the depreciation schedules to the return, and disposition schedule as well if there is one. Just seems to create a paper trail.

Sandy

[taxea]

Not me

I don't provide it to the new preparer nor do I provide a copy to the client. It is work product that the client is not charged for.

[newbie]

Drug this up from 2007 - couldn't sleep?

I really have a hard time believing you don't charge to enter those assets into the depreciation schedule. It seems very generous for the time so why don't you charge?

[Bees Knees]

Well... the reason I report the item on form 4797 is that it is a disposition of an asset that has changed (especially if a corporation balance sheet on page 4 of the tax return) and the IRS can see that the asset and accumulated depreciation has changed from prior year.

There really is no reconciliation of the balance sheet on Schedule L with the tax return. For one thing, the depreciation reported on the tax return is in many cases different than the depreciation reported on Schedule L for book purposes. True, the difference in depreciation claimed in the current year is reconciled on Schedule M-1. But there is no reconciliation schedule on the tax return that keeps track of total depreciable assets and accumulated depreciation claimed for tax purposes verses book purposes. The schedule L is mostly used by IRS to notify them of the size of the corporation (total assets), and capital verses liability accounts (how much of the corporation is capitalized by stock verses debt).

Reporting an abandonment on Form 4797 when there is zero tax consequence is probably the correct way to do it, but it is not necessary. Pub 544 talks about reporting abandonments, but only does so in the context of reporting losses from an abandonment. It says nothing about reporting zero tax transactions. Form 4797 talks about reporting abandonments, but again says nothing about reporting zero tax transactions.

If IRS wanted tax and book accumulated depreciation and total depreciable assets to reconcile, there would be entries on the 4562 for such. The 4562 only reports depreciation claimed in the current year. Nothing about prior year depreciation or total depreciable assets. I think reporting abandonments on Form 4797 when there is no gain or loss is overkill and unnecessary. IRS has way too many other real issues to worry about.

[JON]

I will have to

disagree with you Bees. Your schedule L is based on books. While it may not always become important as the differences between book in tax you will run into problems if you do not keep tract. Basis in assets different between book and tax that are forced to tracked include but are not limited to - sale or dispostion of the asset before both basis are 0, the result is a schedule M adjustment for the difference; also trade-ins the basis differences can be pushed into future years forever with different tax to book basis. Tract those differences forever. the difference is no always a one year thing.

[BHoffman]

I've used materiality, and that would vary depending on the particular Sch L, to decide whether to report a zero-tax scrapped item on form 4797 or just take it off the depr. schedule. I'd report a $30,000 piece of equipment as scrapped but probably not an $800 item.

[Bees Knees]

disagree with you Bees. Your schedule L is based on books. While it may not always become important as the differences between book in tax you will run into problems if you do not keep tract. Basis in assets different between book and tax that are forced to tracked include but are not limited to - sale or dispostion of the asset before both basis are 0, the result is a schedule M adjustment for the difference; also trade-ins the basis differences can be pushed into future years forever with different tax to book basis. Tract those differences forever. the difference is no always a one year thing.

I never said Schedule L was not important. The issue is whether you think changes on the Schedule L need to somehow show up on the tax return. Capital contributions only show up on the Schedule L. Personal loans from the shareholder to the corporation only show up on the Schedule L. The purchase of land and other fixed assets that are not depreciable only show up on the Schedule L. Why does accumulated book and total depreciable book assets need to go on any other form besides the Schedule L? That is what Schedule L is for. Form 4797 does not need to be filed for a transaction that only affects accumulated book depreciation and total depreciable book assets.

[taxea]

I really have a hard time believing you don't charge to enter those assets into the depreciation schedule. It seems very generous for the time so why don't you charge?

I charge for entering the asset in the original year of service but, since I don't have to manually create the depreciation report and enter it into my program I consider it work product and don't release it. The client doesn't get a copy of the yearly schedule or the depreciation report attached to their copy of the return...I don't include a charge for them on the return. It saves the client prep money. It is not included in the filed return so I am not required to give a copy to the client.