Self employed- Closing business

[Txmex24]

I have been self employed since 2009.  For 2022 and 2023, I had no self employment income due to illness.  Only my wife had a W2.  I did not report a schedule C for 2022 or 2023 as I had no expenses or income.  We have used all depreciation and section 179 on equipment and property.  Two items are almost to their full life, next year.  I want to close this business down at the end of this year.  So when I file my 2024 taxes, do i have to recapture anything at that time?  I have not sold anything.  I might not sell any of the equipment for a couple years.  I need to do some repairs first.  How do I go about this?

[M-MTax]

Not much needs to be done for reporting closing of a sole proprietorship BUT the Sec 179 assets are a problem in terms of recapture if the business use falls below 50%. Look at this article  

[Txmex24]

I havent used them at all for personal or business use since i have been sick.  They are still apart of the business.  I just decided i am not going to get better.  There are two that have 1 year of their life left.  I still do not understand what I should do.  

[AmeliesUncle]

Any recapture of Section 179 (or Listed Property) should have been on your 2022 tax return.

For the current year, no, there would not be any recapture.  The recapture of Section 179 (and Listed Property) should have been taken care of in 2022, and the 'regular' kind of recapture does not happen until you sell the property.  But if/when you do sell the property, you will need to report the sale and any 'gain' will be depreciation recapture.

[Txmex24]

I was still going to be in business and was told it was okay to skip a year and not put a schedule C since I had no income or expenses.  It ended up being two years due to being sick.  I feel like I am getting conflicting info here.  So you are saying the only way to rectify this is file and amendment?

[AmeliesUncle]

For the business itself, yes, it is usually okay to just not report it.  However, if Section 179 (or Listed Property, such as vehicles that were using accelerated depreciation) needed to be recaptured, that changes that answer and you should have reported it (the recaptured income will end up on your business Schedule C).

That is one of the problems with these forums rather than going to a tax professional.  We typically only get a small bit of information, rather than knowing the entire picture, so the answers can be hit-and-miss because we don't know all of the information.

Yes, if the Section 179 was not recaptured in 2022, the only way to correct it is to amend.

[Affordabletaxes2021]

You said in the beginning “I am going to close the business.”

Are you closing it ? You can’t keep it open to avoid depreciation recapture.

[Txmex24]

I am definitely closing at the end of this year.  I am too sick to continue with it.  It is a diesel mechanic job and I cannot do the physical requirements of the job.  I have made probably $300 this whole year.  I had no income in 2022 or 2023.  I was told before in this forum back in 2023, when filing 2022 that I could skip a year if no income or expenses and not have to recapture 179 since I wasn't closing.  

[AmeliesUncle]

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@Txmex24 wrote:

 and not have to recapture 179 since I wasn't closing.  

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I don't see your post about that, but if somebody told you that, they were incorrect.

[Txmex24]

I was probably on my spouse's account then.

Update:  I spoke to a CPA today who has been in business for over 30 years.  He stated NOT to amend the 2022.   If anyone else is reading this looking for answers, I would NOT go by the multiple answers on thus forum.  Go ask a qualified tax professional.  😉 

[Mike9241]

179 recapture is only required if business use of the property falls to 50% or less during the MACRS recovery period. for example, MACRS property with a normal depreciable life of 5 years will be fully depreciated in the 6th year of service. 

the recapture amount is computed as follows:

1) The amount of 179 originally deducted 

20 less: the MACRS depreciation from the year the property was placed into service through the current year that would have been allowed on the portion of the asset for which the 179deduction was claimed 

1) 

[AmeliesUncle]

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@Txmex24 wrote:

Update:  I spoke to a CPA today who has been in business for over 30 years.  He stated NOT to amend the 2022.   

If anyone else is reading this looking for answers, I would NOT go by the multiple answers on thus forum.  Go ask a qualified tax professional.  😉 

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Unless the assets were past the Recovery Period (see Mike's comment, but your original post indicated they have not done that yet), that CPA is advising you to not fix an incorrect tax return.

I agree with going to a tax professional rather than asking question on a forum; that is what I mentioned in one of my prior comments.  But don't just ASK a tax professional: GO TO a tax professional so they have ALL of the pertinent information.