Hi,
I sold $7,000 worth of business camera equipment in 2021. I previously purchased it for $10,000 in 2017 & 2018 and it was expensed for that full 10k value as a 179 deduction in those years (it was used 100% for business).
Since I sold it for $7,000 in 2021, I believe I should now be paying taxes on that 7K amount, essentially as if it's income, since I previously took the full deduction of $10,000. Where / how do I enter this in turbo tax? (I'm a sole-proprietor)
Thank you!
The $7,000 sales proceeds are reported as ordinary income in the current year. You reported the cost of the items in 2017 and 2018.
IRS Publication 544 states:
Property deducted under the de minimis safe harbor for tangible property.
If you deducted the costs of a property under the de minimis safe harbor for tangible property, then upon its sale or disposition, this property is not treated as a capital asset under section 1221. Generally, any gain on the disposition of this property is treated as ordinary income....
Go through the asset section and mark the equipment sold. Enter the sales price. The program should calculate the gain on Section 179 for you and place the information on Form 4797.
Thank you for the reply, however, there are no “assets” to be marked as sold. This is because Turbo Tax states that equipment that is being entered using the 179 deduction should be entered as a “miscellaneous expense” instead of an “asset”.
You take a Section 179 deduction for an asset. It is a way of taking all the depreciation in one shot as opposed to taking it over the useful life. Section 179
The De Minimus Safe Harbor election takes the asset as an expense.
De Minimis Safe Harbor Election
This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.
The Turbo Tax program explicitly said to enter the camera equipment (each individual item cost under $2,500) as a “miscellaneous business expense” for the 179 deduction, and to NOT file the equipment as “assets”. Therefore, there are no “assets” that were previously filed, and no assets to be marked as disposed of. What am I missing? Thanks
The $7,000 sales proceeds are reported as ordinary income in the current year. You reported the cost of the items in 2017 and 2018.
IRS Publication 544 states:
Property deducted under the de minimis safe harbor for tangible property.
If you deducted the costs of a property under the de minimis safe harbor for tangible property, then upon its sale or disposition, this property is not treated as a capital asset under section 1221. Generally, any gain on the disposition of this property is treated as ordinary income....