Answers · Deductions, assets & depreciation
How Should a Business Record Asset Disposal?
On asset disposition, remove cost/accumulated depreciation from books and compute tax gain/loss using amount realized versus adjusted tax basis, including recapture.
How it works
The rule, and what it turns on.
Outstanding loan balance is not the tax basis. §§1245/1250 can convert some gain to ordinary income.
Example
$100,000 cost, $80,000 depreciation, $50,000 sale price gives $30,000 preliminary gain, potentially §1245 recapture.
Common mistakes
What we see go wrong, and what we do instead.
- Using loan payoff as basis.
- Forgetting prior bonus/§179.
A better approach
- Prepare Form 4797 asset-disposition schedule before booking tax adjustment.
Authority
Where this comes from, so you can check it.
IRC §§1001, 1011-1016, 1231, 1245, 1250.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Also asked
The same question, the other ways people put it.
- What Happens When a Business Sells a Depreciated Asset?
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