Can gain from sales of laptop used in business be excluded as foreign earned income?

Forum|Forum|1 year ago
June 13, 2024
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Is my assumption correct that business equipment, such as tools or laptop, that are sold after being fully depreciated to zero after several years of use, count as a gain for ordinary income, to be reported on part III 4797 as section 1245 property?

Then is it possible to exclude that gain as foreign earned income on form 2555?

The issue is that I'm not sure the sale is "earned income" through professional services.

Does it seem unfair that the depreciation on the equipment counted as business expense, reducing foreign earned income, but the recapture of the depreciation cannot be excluded?

If instead only foreign tax credits can be claimed, would it be foreign branch, passive, or general category?

JCampbellEA

The gain from the sale of a laptop used in business cannot be excluded as foreign earned income on Form 2555. Form 2555 is used to exclude foreign earned income, which generally refers to wages or self-employment income earned while working abroad, not gains from the sale of business assets. If you're looking to claim foreign tax credits instead, the category of income would depend on how the laptop was used in your business. Typically, the gain from the sale of business property would fall under the "general category" income for foreign tax credit purposes. However, if the laptop was used in a passive activity, it might be considered "passive category" income. It's important to assess the specific use of the laptop in your business to determine the correct category.