Poor health - take depreciation on business?

[Sherill]

Client is a local logging truck driver/farmer/rental equip small business owner.
He has income from driving truck, but no income for being a farmer/rental for 2006.
He has depreciation of 3200.00 for rental equipment for 2006.
Question: If he has no income, can his depreciation continue to show on his Sch F and 4562? This would put him -3200.00 loss for 2006 for Sch F.
Client has never shown a profit in five years as my client!
He is unable to work due to poor back/health conditions...but is seeking pain clinic medical help. (Age 33).
Thanx.

[jainen]

file Schedule F

>>He is unable to work<<

To overcome the presumption of a not-for-profit activity, he must make changes in his operation in a way expected to generate profits. Whatever his personal health issues, stopping work completely for more than a year would not be such a change.

Since he is renting the equipment, he could easily turn it back in and pick it up again when needed. Or he could sublease the idle machinery (or the whole farm). Or he could hire a manager or foreman to run the farm. Or he could switch to a different crop that was less physically demanding. Or he could use the time he can't work to contract for conservation or other capital improvements that will have long-term benefits.

The way things are, he should not file Schedule F.

[ChEAr$]

concur

with jainen.

However there are a lot of ex farmers out there who still take their "stuff" in and leave it
with preparer who dutifully prepares schedule f each year with zero income.

[oceanlovin'ea]

Similar scenario

I had a similiar case last year. I had a single guy who was starting a carpet cleaning business. He started the business in Oct of 2004. He did a few jobs and had expenses. I did a schedule C for him.

When he came in to do his 2005 taxes, he didn't have any income from the carpet cleaning. He had taken a job at an auto parts store to pay his bills. He said he was still trying to do the carpet cleaning but didn't get any jobs that year but he still wanted to claim his depreciation etc. I told him NO because he really had not worked the business and he couldn't just take the deductions.

He called IRS and talked to someone on the phone who told him that he should file the schedule C and claim his deductions. So I amended his return and documented why.

I know that IRS people don't always know or give the right answers. But that was the answer he was given.

Linda F

[jainen]

you don't KNOW

>>that was the answer he was given<<

First of all, you don't KNOW that was the answer given. You don't even know what he actually asked them.

If a client wants to use the results of his own research, he can jolly well do his own return. If he wants me to do the return, he must sign my engagement letter which says, "The tax code may support different interpretations and I will use my best judgment in treating the information you provide to me."

I don't give a darn what anyone says the IRS said. As a matter of fact, neither does the IRS.