Sale of Business Property

Forum|Forum|5 years ago
March 27, 2021
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Can tools that were purchased as part of a business, but that were used by a new business, and were then sold, be deducted as a capital loss from the new business? Or can they be deducted as a capital loss from the original business, even if it is no longer in business? And is there a time limit on how long you have to be able to deduct a capital loss on business property sold after the closing of a business?

T

ToddL99

Typically, small tools are fully expensed (deducted) in the year they were purchased - moving them to a new business does not allow you to claim a deduction for them a second time. Proceeds from the sale of fully expensed/depreciated assets are fully taxable as ordinary income.

If you were depreciating the tools, moving them to a new business would potentially be a taxable event at the time they are moved, i.e the old business would be selling/transferring them to the new business at FMV. The transfer ("sale") would be reported on Form 4797 and entered by "selling" them in the Asset/Depreciation interview of TurboTax Self-employed (or Home and Business). This could be a gain or a loss, depending on the FMV and cost basis at the time of the "sale"

If the new business then sold the tools, any gain or loss would also be reported on Form 4797. Any gain or loss would be determined by the proceeds of the sale and the adjusted basis of the tools at the time of the sale.

A gain or loss on the sale/disposition of business asset must be reported in the tax year in which the sale/disposition occurred - that is the "time limit".