Tax Question: Sold business last year, what do I do with the section 179 deductions from the previous year?

Even though The Tax Lady is technically correct, I feel a need to chip in.

The fact that you took 179 means that your investment (basis) in these tools is now zero. Whatever you get for the tools becomes income. The textbook approach is like this: say, you sold the business for $5,000. Out of that, you allocate $2,000 to zero-turn mower, $200 to push mower, and the remaining $2,800 to customer list or whatever else. After completing all the pesky forms 4797 etc, you will end up with $2,000 depreciation recapture income on one tool, $200 depreciation recapture on the other, and $2,800 ordinary gain on the rest.

But guess what? All 3 end up getting taxed at the same ordinary tax rate. So if you simply disregard the tools and report just one ordinary gain on the whole $5,000 - you arrive at the same exact result. And while it's not "by the book" - I frankly see no reason to complicate your tax reporting when you're not distorting the bottom line.

Disclaimer: my colleagues may point out that under some scenarios, the result of my shortcut is not the same as the "proper" calculation. Fine, I agree. However, it's unlikely to be material with this relatively small transaction, and besides any allocation has a built-in subjective factor anyway. So, what's the point of over-complicating?

Michael Plaks, EA, Houston TX

www.MichaelPlaks.com

Okay, you get your form 8594 that both you and your buyer filled out. (You attach this to your tax return.) You use those numbers to fill out form 4797.

Since these are fully depreciated, you start on page 2. The $5200 from the mowers will be added back to your income on line 14, as ORDINARY INCOME.

in the sale are these pieces of equipment listed separately as the item by item part of the sale?

if so whatever your price for the equipment is is gain to you

Any amount realized over and above the depreciated value constitutes a gain and is subject to taxation as a capital gain.

Use turbo-tax and it will walk you through it.