Tax Guru – Ker$tetter Letter

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Closing Biz After Sec. 179

Posted by taxguru on February 14, 2009

Q:

Subject: section 179 question

If I have taken section 179 expense deduction in 2006 and 2007 and have had to close my business in 2008 will I have to claim these deductions from these years as income in 2008?

Another question if you could please give me advice.  I installed new carpet, laminate flooring and countertops/cabinets in my leased office in 2008 could these items be considered section 179 expenses or are they items that could be classfied as building repairs or would I have to depreciate them and over how many years?

Thanks,

 

A:

You need to be working with an experienced professional tax advisor to make sure you do things properly here.

Basically, if you claimed Section 179 for business equipment on previous tax returns, the adjusted cost basis of those assets is zero.  This means that anything you receive for them in a sale is going to be taxable gain; technically a recapture of the previously deducted Section 179.

If you just shut down the business and don’t sell off the assets, there will still be a smaller taxable recapture because their business usage has fallen below 50%.  Your personal professional tax advisor should have tax software that will calculate that recapture amount.

There are various ways in which your leasehold improvements can be expensed and/or depreciated.  Your personal professional tax advisor should be able to use the method most appropriate and beneficial for your unique situation.

I hope this helps.

Good luck.

Kerry Kerstetter

 

 

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