I have an S-corp 1120S final return that I am filing for a mortgage company that has closed. There are several assets like computer equipment and furniture that were previously taken as a Section 179 expense. There is still a couple of years left in the recovery period. Computer equipment is five year property but only in service for four years. All of these assets are being scrapped. None of it will be sold. Some of the assets will be given away and some will be thrown away. Most of the computer equip is obsolete and they could not even give it away. I am treating all these assets as scrapped with no FMV. From what I could read about Section 179 recapture because these assets are disposed I am supposed to report on Schedule K-1 Line 17 so the shareholder can then report the gain or loss on 4797 of individual return. My question is if there is no gain or loss because assets are not sold how does the individual report on the 4797? Since the assets are disposed I understand that you cannot put on Part four of the 4797. From what I could read in pub 544 depreciation recapture is only reported up to the amount of the gain. If the FMV is zero because the assets are scrapped does that mean the shareholders do not have to recapture the excess 179 deduction taken since there is no gain or loss?

Thank You!

Grace1101

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To my knowledge and prior assistance from these boards is that so long as the equipment was used as business property up to date of disposal - there's no recapture - regardless of period actually used.

I had a similar situation.

2007 a contractor bought a $ 32,000 piece of equipment (tractor). Didn't use in 2007 because it wasn't registered with DMV, no sales tax paid, not insured. So asset sat in balance sheet undepreciated and client paid humongous tax that year.

2008 finally registered, insured, sales tax paid, and Sec 179 depreciation deduction taken.

2009 - sells to a third party for $ 5,000.

I was advised on 2 different boards with same facts - NO RECAPTURE.

Just report on appropriate section of Form 4797 to show disposal - even if to show -0- profit/loss.

Gain is only the difference between selling price and book value.

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>>I was advised on 2 different boards<<

Both boards were WRONG. Section 179 recapture requires a different tax treatment than gain/loss on sale of asset.

It's easiest to understand in terms of Schedule C, where Section 179 recapture is business income subject to SE tax. It can affect other things too, like the amount of capital loss carryover and the amount of new Section 179 available and the passive loss limitations.

You don't get to pick and choose which Internet posts you'd like to follow. If you don't believe me, read the instructions.

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>> Schedule C, where Section 179 recapture is business income subject to SE tax.<<

Does IRC Sec 1402(a)(3)(C) exclude or fail to exclude Section 179 recapture from self-employment income?

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>>Does IRC Sec 1402(a)(3)(C) exclude or fail to exclude Section 179 recapture from self-employment income?<<

What? That's a total non sequitur. [The citation refers to the definition of SE income as excluding gain from the sale of assets unless they are inventory.]

Section 179 is an election to treat property as "an expense which is not chargeable to capital account." An EXPENSE--kind of like postage, you know.

On disposition, "the taxpayer must recapture the benefit derived from expensing the property." So if you had used 179 to reduce SE income more than normal depreciation would have allowed, you must now add that benefit back into SE income. It's a completely different issue than Section 1245 gain.

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And what's wrong with something being a *non sequitur*? Answer carefully; this is being recorded.

Who said *anything* about Section 1245 gain? Your introduction of it is a *non sequitur*.

The correct answer would be "it fails to exclude it".

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>>Who said *anything* about Section 1245 gain?<<

I did. And so should you and anyone else who talks about Section 179, because it is the core definition of property eligible for expensing.

>>it fails to exclude it<<

Yeah, so does the National Anthem. I think that's irrelevant, but you are welcome to your own opinion.

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But we're not talking about property *qualifying* for the election, we're talking about "Section 179 recapture" which makes your comment a *non sequitur*.

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