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How to deduct junked phones with loss. Form 4797 does not seem appropriate as they were not sold.

Forum|Forum|3 years ago
September 12, 2022
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How do I deduct junked phones with a $400 loss on an 1120-S?

A Form 4797 does not seem appropriate as they were not sold.

Can't this be an ordinary expense? I can find instructions for other tax programs but not TurboTax.

TurboTax Business Windows

Best answer by AmeliesUncle

@SML654987 wrote:

Yes, of course. Remaining depreciation is a loss, as stated in my question.

I had no problem with the program when entering, and disposing of (junking), a phone on a test return (1120-S in TurboTax Business).

You should be aware, however, that the loss is ordinary due to the fact that the phone was business property regardless of the holding period.

Thus, if the phone had been held longer than one year, the transaction belongs in Part I. If held for one year or less, it is entered in Part II. Either way the remaining depreciation is treated as an ordinary loss.

@Anonymous_ wrote:
Thus, if the phone had been held longer than one year, the transaction belongs in Part I. If held for one year or less, it is entered in Part II.

I disagree. The OP is correct, and as far as I know, TurboTax (and ProSeries) is faulty in this situation and can not handle this correctly without an override.

As is noted in the Instructions for Form 4797, an Abandonment goes in Part 2 of 4797. If you put it in Part 1, it incorrectly affects the 1231 carryover rules.

Carl11_2

Employee

Were these phones used in a business?

If so, were they listed as business assets in the business assets section and depreciated over time? Or were they expensed and claim in the first year they were purchased and placed in service for the business?

If so, are/were the phones completely depreciated at the time of disposition?

S

SML654987Author

Business phones, not Sec 179, and $400 left to depreciate when abandoned.

I think I figured it out. I can override "Part I" with "Part II" for the 4797, which moved it to line 10 & 17

Critter-3

You should not override anything as that will void the accuracy guarantee and could keep you from efiling. If you had this listed as assets then you will indicate that you disposed of them for $0 and the 4797 will be filled in automatically.

S

SML654987Author

The instructions say to report the abandoned property as an ordinary loss on Form 4797 on LINE 10.

How do I get TurboTax to move it to line 10?

Critter-3

Answer Carl's questions so that we can assist you better. And you did "sell" them when they were retired and you sold them for $0...report this in the asset section.

S

SML654987Author

I know that TurboTax instructs us to "sell" them even though we did not sell them, but after reading publication 544, etc., they belong in section II of the 4797

A

Anonymous_

Employee

In TurboTax Business, you will indicate you disposed of the phones as shown in the screenshot below.

Untitled.png

Critter-3

@Anonymous_ is correct ... I was giving instructions on the personal return. However both programs will treat this as a business asset that was disposed of before it was fully depreciated putting this on the form 4797 to be taxed as ordinary income.

A

Anonymous_

Employee

@Critter-3 is correct.

If depreciation deductions had been taken on the phones on an annual basis, then there will be a loss to the extent of the remaining depreciation deductions not taken. If the phones were fully depreciated (e.g., zero basis), there will be no gain or loss on their disposal (if they were junked for $0).