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

Q:

Subject: Home Sale Gain Exclusion

Situation:
5 years ago, was laid off in Minnesota and had to settle for a California job.
Commuted every 2 weeks for 1 year then moved family to a rental.
Wife and children lived in MN home every time children not in school (about 3 months per year), nevertheless total days is well shy of 730.

Kept a car registered in MN, voted in MN, kept MN drivers licenses, bank account in MN while trying unsuccessfully to transition to a job back in Minnesota.  Even had several in-person interviews in MN over the years.

Finally gave up & sold in Minnesota; just closed.  We expected to exclude 50K of gain.

Can we
A) Exclude the gain because our beloved MN home was our primary residence defined by that we never bought anything else and always considered & treated it as “our home”.
B) Exclude the gain because the wife was always staying there… it may be shy of 730 days but there is no way to audit that.
C) Exclude the gain because I was forced to sell due to a job situation and we used it as a primary residence for 1 year, 50% of the 2 year standard, and all we need to exclude is $25K apiece.
D) SOL

Thanks!

A:

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

It looks like you should be able to qualify for the prorated tax free exclusion based on your change in employment.  Since your gain is only 10% of the total possible Section l21 exclusion of $500,000, there shouldn’t be a problem in excluding the full amount of your profit.
However, your personal professional tax advisor will be better able to evaluate the details of your situation and decide if that is the case.

Good luck.

Kerry Kerstetter