Sale of section 179 property in 2nd year and listing on form 4797

[Saulgoodman8]

So I sold a piece of equipment the year after I took the section 179 deduction. I entered the information in TT. When looking at form 4797, it put the sale price of the piece of equipment as a gain on sell of asset. It place that number as an amount I owe taxes on. The confussion some in on form 4797 where it filled out part IV and also list an amount on line 35. I would not think I would report the amount of the sale as gain and the amount on line 35 also as a gain to be taxed (of which TT did not put the amount on line 35 anywhere on another form). Why would it list any number in part IV, when it already said I have a gain in part III of the form?

[ThomasM125]

Part III reports the total gain on sale of the asset and part IV reports the portion of that gain that is taxed as ordinary income. To the extent you deducted depreciation on the asset, that portion of the gain will be taxed as ordinary income while any remaining gain will be taxed as capital gain income.

[Saulgoodman8]

Thanks for the reply. I am getting confused because it seems if I got to recognize the adjusted portion of the section 179 recapture that is showed in part IV, then it seem it should not show the entire sales price of the piece of equipment as a gain also (where it treated the asset as having not basis). It seems if the recapture happened, then the transaction for the sale of the piece of equipment show use and adjusted basis because of the recapture....hince when looking at it that way I sold the piece of equpment for a lost. It just seems I am having to recapture the section 179 amount as taxable income and no consideration that the asset sold actually did have a basis then that would go against the sale price, instead of treating the asset as no basis and the total sale price is also a gain. I hope I make sense.

[ThomasM125]

If you elected section 179 treatment for the whole cost of the asset, then you would have deducted the full cost of the asset, so the adjusted basis would be $0. Say it cost $1,000 and you took section 179 of $1,000, then the basis is $0. If you then sell it for $1,000, you have a gain of $1,000 and it is treated as ordinary income, since the depreciation was used against ordinary income.

[Saulgoodman8]

Thanks again. If you are still there can I throw out the actual numbers. 2020 equipment $3,200 expensed section 179. Piece of equpment sold in 2021 for $2,700. When I input the information in TT it calculates in part three that the $2,700 is the gain and taxable, like you mention. I understand that is because it was fully expensed in 2020. That part makes sense that I am going to have to pay tax on the $2700. Where I am confused is part IV, the recapture amount. It comes up with $2,743 on line 35 (which is the $3,200 lest one year depr of $457). Than line 35 says to see instruction for where to report.  DOES that mean I have to pay tax on the $2,700 and tax on the $2,743? TT carred the $2,700 to SCH 1 part 1, but did not put the $2,743 anywhere. So do I just ignore line 35 amount because TT did not move it to another schedule or form and just assume I just owe tax on the $2,700 it did place on a form. Sorry for the long explanation, but appreciate you help.

[DianeW777]

The maximum taxable gain is the $2,700 that is carried to Schedule 1.  The gain to the extent of Section 179 will be taxed as ordinary income and that is what is happening.  There would be no taxable amount that is greater than what you actually received for the sale. 

Since that is what is happening there is no need for concern over the other figures you see on Form 4797.