gain on sale of personal equipment

[redrockgrl]

We started a business in 1999, purchased equipment in 2001 with a personal guarantee to the bank on the loan for the business. The business went under in less than a year later and defaulted on the loan repayment. We personally paid off the equipment loan, took possession of the equipment and immediately put it into storage where it has remained for 20 years. It was never depreciated through the business nor on our personal taxes. We sold the equipment in October and November of last year to a broker and realized a net profit of $5978. We have looked at form 4797 as well as Schedule C, line 8z but are confused as to where to enter the net profit from the sale.

[ColeenD3]

It is personal property. Unless you went into business and closed the business within the same year, you would have had to take depreciation. You will have to recapture what that amount would have been, even though you did not take it. It is not business property apart from that one instance because as soon as the business was closed, it reverted to personal use.

Depending on the type of property, your percentage could be 5-year property/20% of asset cost, 7-year property/14.29% percent of asset cost or if you placed it into service in the last quarter, and even smaller percentage. I would need to know what the asset was and when during the year you placed it in service.

Enter the sale of your personal use asset following these steps:

Go to Wages & Income

1. Scroll to Investments and Savings
2. Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
3. Time to kick off your investments! = Okay
4. Time to kick off your investments! = Continue
5. Let's import your tax info = Enter a different way
6. There are five boxes available
   1. Interest
   2. Dividends
   3. Stocks, Bonds, Mutual Funds
   4. Cryptocurrency
   5. Other
7. You will select Other

You will then go through an interview process to describe the sale.

[redrockgrl]

Three pieces of composite manufacturing machinery were put into use in April 2001 and we took personal possession of it in December of the same year. (9/11 was catastrophic for our funding!)

[JohnB5677]

If you purchased these items for a business you must close them as assets, and include the depreciation you have accumulated.   To post the sale, you will get to the entry screens exactly as @ColeenD3 described.  

The information you will need is

• Description of equipment
• Date of purchase
• Purchase price
• Date of sale
• Sale price 

[ColeenD3]

Machinery is seven-year property. Your amount for depreciation is 14.29% for the first year. When you enter the sale, you will have to adjust the basis to compensate.

[Rick19744 · Accepted solution]

Ok.  I have a different take on how this should be handled:

• What I think everyone has lost sight of, is this happened 20 years ago.  There is no business to close out.  This asset has been a personal asset for 20 years.
• What you need is the cost of the property in question; original purchase price in 2001.
• Multiply that by the 14.29% noted in another reply.  This is the depreciation that should have been taken.
  • You indicate that no depreciation was taken, however, the tax rules provide that the basis is adjusted by depreciation allowed or allowable.  So bottom line, you need to reduce the cost of the equipment by the depreciation allowed.
  • You indicate the business went under "less than a year later".  Not sure of exact timing based on this statement.  Does this mean you purchased the equipment and then closed the business in the same year?  This could make a difference in handling this matter.  If property, such as this asset, is placed in service and "sold" within the same year, no depreciation is taken.  So if you closed out your business in 2001, then no depreciation will be allowed.
• Next, adjust your original cost basis based on the discussion above.
• Now determine your gain or loss; sales price minus adjusted basis.
• Since the asset has been a personal asset for 20 years, if you have a gain, report this on form 8949 which will then flow to Schedule D.
  • There is potential for depreciation recapture as noted by @ColeenD3 , but we don't have sufficient information and I presume it is highly unlikely you have a gain.
• If you have a loss, no deduction since this is a personal asset and no depreciation recapture.

[ColeenD3 · Accepted solution]

Since you converted the property to personal use 20 years ago, it is a capital asset. Since you had a gain, you must report it.