Cost basis for sale of business equipment originating from personal property converted to business use

[reluctant-taxman]

I purchased a machine for personal use with an original cost of $33000.  Several years later, I started a business using this machine and used it exclusively in this business for many years until I sold it in 2019 for $20,000.  In the year it was converted from personal to business use, it was brought in at $28000 FMV and that amount was used for depreciation. (sec 179 in the first year of business use). TurboTax only knows the 28000 number in the asset worksheet, and is calculating that I have a gain of $20000 on the sale (cost basis would be $0).  However I believe that the cost basis should be $5000, ($33000-$28000, my original cost less depreciation allowed/allowable) and that the gain on this sale is $15000 not $20,000.  My qyestion is which is correct, and if the latter, should I change the original cost to $33000 in forms mode on 4797, when I am working through this sale in turbo tax. thanks

[ColeenD3]

Selling a converted asset is not that simple. Just as you used the lower of basis or FMV for depreciation, you must work out the gain/loss using both adjusted basis and FMV.

Calculating Gain/Loss on Subsequent Sale of converted Property (Regs. Sec. 1.168(i)-4(b)

If a personal use property is converted to business use property is later sold at a gain, the basis in the converted property is the original cost or other basis plus amounts paid for capital improvements, less any depreciation taken.

 If the sale results in a loss, however, the starting point for basis is the lower of the property’s adjusted cost basis or FMV when it was converted from personal.

[reluctant-taxman]

Do the three numbers I gave 33000 new, 28000 converted FMV and sec 179 deduction, and 20000 sale price allow one to calculate what is necessary? Can you illustrate? If not what other number is needed?  p.s. the regulations link doesnt work for me. thanks

[reluctant-taxman]

And can Turbotax home and business handle this with the right inputs?

[ColeenD3]

You will have to manually do the calculations and then add it to the program once you have determined the gain/loss.

This LINK give examples.

[reluctant-taxman]

Thank you for the article.  Following it, and using the facts I gave in my original question,

1) Basis on conversion date under normal rule, $33,000

2) FMV on conversion date, $28,000

3) Post conversion depreciation deductions, $28,000

4) Basis for tax loss (line 2 - line 3), $0 (zero)

5) Basis for tax gain (line 1 - line 3, $5,000

6) Net sale price after selling expenses, $20,000

7) Tax loss (excess of line 4 over line 6), N/A, no excess

😎 Tax gain (excess of line 6 over line 5), $15000

So I report a cost basis of $5000 using original purchase price of $33000 less depreciation taken of $28000 and pay tax on gain of $15000 on the 2019 sale of the machine for a price of $20000.  Does it look like  I understand this correctly? thanks again.

[reluctant-taxman]

I dont know where that smiley came from,it is supposed to be point number 8 corresponding to that in the linked article.

[ColeenD3]

Yes. It looks good. My pleasure.

[CH99]

So how do you use Turbo Tax when you have a scenario like "Example 1: No tax gain or loss on sale" via the link you posted?  I have a property that is calculating no loss or gain just like the example.