Expense or Depreciate Restaurant Equipment

[Anonymous]

I opened a restaurant in 2015. Due to excessive financial losses I closed it and sold the assets in 2016.

I'm confused about how I am going to write off the assets I purchased. As I understand it, large fixtures meant to be kept long term are not treated as 'expenses' but must be 'depreciated'. My issue is this...for the large capital assets such as the refridgerators and ovens that cost me a ton of money how will I write them off? If it's a capital asset and let's say I paid $25,000 for them, and sold them a year later for $25,000, how will this be recorded on the 2015 tax form? I can't depreciate it as I sold it a year later.

[IsabellaG · Accepted solution]

When you depreciate an asset and later sell it, you reduce your cost basis in the property by the amount of depreciation that you claimed in the prior year.

So if you purchased equipment for $25000 in 2015, you would claim the depreciation in 2015. In 2016, you would continue to depreciate the property until you stopped using it for business.

Then, if you sold it for $25000, you'd have a gain on the sale, that might look something like this:

$25000 sales price -$25000 cost basis + Depreciation allowed or allowable  prior to the sale $5000 = Gain  of $5000.

 If you choose to expense this property rather than depreciate it, your gain when you sold it would be greater. Essentially, anything that you claim as a deduction in 2015 will become income to you for 2016.