Disposal of Business Assets

[salmonela79]

Hello, I had a photography business that I terminated last year (2021).  I had expensive camera equipment and a laptop that I have kept (did not dispose).  What should I enter for why I stopped using the assets?  The choices are:

1. Sold

2. Stolen

3. A casualty loss

4. Given away

5. Disposed of by some other means

[JamesG1]

You terminated the business, not sold the business or disposed of the business assets.  You may choose to retain the assets may be retained as partially depreciated.

For instance, camera A purchased for $500 with $200 in depreciation leaves a $300 cost basis in the asset.  If the asset is later sold, the $300 would be the cost basis. 

[Rick19744]

We don't have sufficient facts to provide a response at this point.

We need to know what type of entity this is?

You refer to "I" and are in TT Business.

Are you an S corporation?

[salmonela79]

This was for a Partnership LLC (two person) in California.

[Rick19744]

Helpful for me to provide some guidance, but partnership tax is complicated:

• Unfortunately, regardless of the size of the partnership, the tax issues get complicated very quickly.  As such, you may want to consult with a tax professional.
• You don't mention when the business terminated.  If before 12/31, the partnership return is due the 15th day of the 3rd month following the termination.  So hopefully this is not an issue for you.
• Liquidating distributions should be based on each member's interest in the LLC.  If not, this will cause disproportionate distribution issues.  I bring this up as you state you received some expensive camera equipment.  What did the other member receive?
• You need to report the liquidating distribution(s) on line 19 of the K-1 with the appropriate code.
• When property is distributed to a member in a liquidating distribution, the property takes a "substituted basis".  There are specific rules on how this is determined.  You also step into being responsible for depreciation recapture (ordinary income) when eventually sold.
• If any cash was distributed, that would reduce your tax basis first before determining your "substituted basis".
• Liabilities and any other potential "hot assets" need to be reviewed for potential tax impact
• Hopefully you have maintained your outside tax basis, as without this, you will not be able to determine the impact of anything discussed above.
• Remember to contact your Secretary of State.  If not "closed" properly California will continue to require the $800 franchise fee.
• I will phone a friend on the disposal within TT Business since I am not on a Windows platform.  I assume you should choose "disposed of by some other means"?  @Anonymous_ any thought here?

[Anonymous_]

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@Rick19744 wrote:

• I will phone a friend on the disposal within TT Business since I am not on a Windows platform.  I assume you should choose "disposed of by some other means"?  @Anonymous_ any thought here?

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Exactly correct, @Rick19744. 

One would use Disposed of by some other means in this scenario when using TurboTax Business.

The key is that you no longer own the asset, no longer use it in your business, and you received nothing in return for it.