Taxpayer had tools stolen from a truck. Tools were used in a business activity that appears on Schedule C. There was no insurance reimbursement. Although the vehicle was probably insured, the contents were not.
Assume for the moment that the cost of the tools was deducted as a business expense in an earlier year. Assume that the tools were not being depreciated. Assume further that in the year of purchase, the tools were not deducted using Section 179. They were simply taken as an outright expense.
What is the adjusted basis of this property?
Is it zero, because the cost was already expensed?
The relevant IRS publications and even the text of the Internal Revenue Code define adjusted basis as "cost minus depreciation allowed or allowable." Section 179 is a type of depreciation, so any expense taken under Section 179 would fall within the scope of this definition.
But if the expense is taken an ordinary deduction, outside the scope depreciation, does this still reduce the basis in the property?
I don't think it does.
The question of whether this taxpayer's tools should have been depreciated, or should have been expensed as depreciation under Section 179, is an interesting question, but it is not the question I am asking.
Suppose I purchase a large quantity of copy paper for my business, and load it into the back of my van. This property clearly is not subject to depreciation; it is an ordinary business expense. The van is stolen and never recovered. I am reimbursed for the value of the van by my insurance company, but not for the value of the paper.
Because the property was not depreciable, it appears that my basis is the original cost.
But can I take the ordinary business expense and take a theft loss on Form 4684?
It seems counterintuitive, especially if the purchase of the property and the theft occurred in the same tax year. But even if they occurred in different years, it still seems like double dipping.
But the code defines adjusted basis in this context as cost minus depreciation. There is no reference to an adjustment to basis for other types of deductions related to the property...
Any thoughts?
Assume for the moment that the cost of the tools was deducted as a business expense in an earlier year. Assume that the tools were not being depreciated. Assume further that in the year of purchase, the tools were not deducted using Section 179. They were simply taken as an outright expense.
What is the adjusted basis of this property?
Is it zero, because the cost was already expensed?
The relevant IRS publications and even the text of the Internal Revenue Code define adjusted basis as "cost minus depreciation allowed or allowable." Section 179 is a type of depreciation, so any expense taken under Section 179 would fall within the scope of this definition.
But if the expense is taken an ordinary deduction, outside the scope depreciation, does this still reduce the basis in the property?
I don't think it does.
The question of whether this taxpayer's tools should have been depreciated, or should have been expensed as depreciation under Section 179, is an interesting question, but it is not the question I am asking.
Suppose I purchase a large quantity of copy paper for my business, and load it into the back of my van. This property clearly is not subject to depreciation; it is an ordinary business expense. The van is stolen and never recovered. I am reimbursed for the value of the van by my insurance company, but not for the value of the paper.
Because the property was not depreciable, it appears that my basis is the original cost.
But can I take the ordinary business expense and take a theft loss on Form 4684?
It seems counterintuitive, especially if the purchase of the property and the theft occurred in the same tax year. But even if they occurred in different years, it still seems like double dipping.
But the code defines adjusted basis in this context as cost minus depreciation. There is no reference to an adjustment to basis for other types of deductions related to the property...
Any thoughts?
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