Could you just answer this about cost?

[gunnersmom]

Follow up on my message yesterday RE sole proprietor selling business assets.

On the 4979, section I, cost basis, If you enter into a lease agreement for equipment and the actual agreement is a purchase price of $10,000. You make a down payment, pay for five years and then make a baloon payment at the end.

Does your cost basis equal the purchase agreement amount of $10,000

The amount of $10,000 plus your down payment and baloon payment OR

The 10,000 plus the interest you paid for five years, plus the downpayment and baloon payment.

[outwest]

Sigh..

>> wisecrack deleted here, thought better of it <<<<

the answer is : none of the above.

and not enough info to tell you what the correct number is.

Got work to do..

[gunnersmom]

sigh back at you

well, thanks, you just made my day. Thanks for nothing.

[rosieea]

Follow up on my message yesterday RE sole proprietor selling business assets.

On the 4979, section I, cost basis, If you enter into a lease agreement for equipment and the actual agreement is a purchase price of $10,000. You make a down payment, pay for five years and then make a baloon payment at the end.

Does your cost basis equal the purchase agreement amount of $10,000

The amount of $10,000 plus your down payment and baloon payment OR

The 10,000 plus the interest you paid for five years, plus the downpayment and baloon payment.

Let's see if I understand the question. The sole proprietor purchased equipment under an arrangement, which, while called a lease, was actually an installment purchase. He paid principal plus interest. The interest portion of the payments should have been deducted by his proprietorship as business interest expense. Cost basis in the equipment is the sum total of all the principal amounts paid.

[outwest]

And depreciation allowed

or allowable is?? Depending on asset type. And year purchased. Bonus depreciation anyone?

Not enough info.

[Snaggletooth]

Gunner Lady

It will probably upset you more, but in all candor, there really ISN'T enough information to enable any of us to help.

First is the 4979. Did you mean 4797? This form is reserved for sales of business assets, and if you've been depreciating this asset, the 4797 is the correct reporting form.
However, if you sold it for a profit, (measured on book value) you should be using Part III and not Part I.

Secondly, you mention a $10,000 lease. Is this the amount payable over the course of the lease or is this the amount payable upon exercising a purchase option? I understand that you sold this instead of purchasing it. However, you would have to settle with the leasing company by tendering the purchase option just to get them to release title.

Thirdly, if you have been making lease payments, have you been deducting them as rent, or did you capitalize the lease? If, after the initial lease period is over, there exists only a "token" buy-out, this should have been capitalized and depreciated when you first acquired the asset, and the payments split into principle and deductible interest, rather than expensing as rent.

Sorry you have run into problems getting answers, but all of the above information drastically affects how you report the sale.

Regards, Snaggletooth