Amending Return to Take 179

[KBTS]

Thought I had this figured out, then started doing more research and got confused - but now I think I got it right but I wanted to check and make sure I am not missing something.

Client started a construction business in 2006 and purchased a Chevy 2500 truck and a trailer to haul tools. When we did the tax return for '06, he decided not to Section 179 expense any of the cost of these assets since he planned to be in business for the long term and wanted the depreciation expense for future years. Now it turns out he no longer likes being self-employed and has closed his business effective December 2007.

He said he wanted to take all the remaining basis as depreciation for these assets in '07, but I told him it does not work that way. After thinking about it some more and looking at TTB (page 9-14 in the '07 edition), I believe he could amend the 2006 return to use the Section 179 expense on these assets. Am I correct on this? Also before I tell him about the big refund that would result are there any other issues to be concerned about that I am missing? Does the fact he will no longer use these assets in a business have tax consequences?

Thanks.

[BOB W]

The 179 would have to be recaptured when it is no longer used for business. Leave it alone...........

[les grans]

Election has to be made on "The Return" for the year, not on an amended return...

The rest of this post is all wrong, as pointed out in the next post. Lester

A section 179 election cannot be made on an amended return after the due date of the original return. It's in the Code, it's in the Regs, and I think it's in the instructions for Form 4562. And if it's not there, it should be. Your election on an amended return a year later would be whatever the lawyers say when they just want to say "not good": they call it Null and Void

And even if you pulled a quick one, and the IRS didn't pick up on the bad election on the amended return, all the section 179 deduction would be taxable when the assets were sold or removed from business use anyway.

[KBTS]

A section 179 election cannot be made on an amended return after the due date of the original return. It's in the Code, it's in the Regs, and I think it's in the instructions for Form 4562. And if it's not there, it should be. Your election on an amended return a year later would be whatever the lawyers say when they just want to say "not good": they call it Null and Void

And even if you pulled a quick one, and the IRS didn't pick up on the bad election on the amended return, all the section 179 deduction would be taxable when the assets were sold or removed from business use anyway.

I kind of figured that removing the assets from business use would trigger some negative consequences. It's good to have a resource like this board to bounce ideas off of when you are a one person operation.

I do have to disagree about your statement regarding amending a return to elect Section 179 expense. To quote an earlier thread about this topic, Bees said:

"The new language in Reg. Sec. 1.179-5(c) says: "This amended return must be filed within the time prescribed by law for filing an amended return for such taxable year.

Any language found in the Section 179 regs that says the amended return must be filed by the due date of the return, plus extensions, is old language prior to the passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003."

So you can amend to take the election, but in this case it would be a bad idea since the business owner is shutting down the business and converting the assets over to personal use.

[JON]

You can amend

to take additional 179 or to decide not to take any that was previously taken. In your case, assuming out of the business in December 2007, the only reason to do it would be the deduction on the 2006 return saves you more in taxes than the recature in 2007 costs you in taxes.

You can amend to move the 179 from asset to another if that would help(original asset disposed of). The date this was changed 2003 or 2004?????

[les grans]

Yeah, Bees is right all right. Amended returns were OKed by the 2003 and 2004 tax acts. I need to put on my thinking cap *on weekends* - the rest of the time I'm on autopilot and don't need to think. Obviously.
I've added a caveat to my bad info above...

Lester

[cpadan]

In the long run, your client could probably save several thousand dollars in SE tax (which is not recaptured) by amending. As JON mentioned, the effect on his regular income taxes will depend on the difference in tax brackets between the two years.

You should run the numbers and let him decide.

Good Luck
Dan

[abby]

recapture flows to original form

If this is a schedule C - the instructions for Form 4797 say to put the recapture on the same form or schedule where you took the deduction - so it may or may not affect SE tax, depending on the bottom line of the schedule C.

[cpadan]

Abby your are correct, in this situation the recapture would go on C and subject to SE tax.