Discussion:Depreciation allowable? SE no income
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Discussion Forum Index --> Tax Questions --> Depreciation allowable? SE no income
| 13 October 2007 | |
| Client is sole proprieter. In past he has had Schedule C income, offset with equipment depreciation. This year all income is W-2 wages. Uncertain whether he will continuue SE business in future, but looks probable at this point. Can he take the depreciation expense this year considering no SE income? The corollorary is: if he can't/doesn't and resumes business would the depreciation allowed/allowable rule come into play? | |
| 13 October 2007 | |
This is an either or situation. Client needs to decide what he will do. Decisions - Decisions  If he still vacillates, he should be prepared to convince an auditor he will be going back in business - assuming you are claiming depreciation. In addition, has this been a profitable business in the past. Finally, if he chucks the business, there well may be depreciation recapture.
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| 14 October 2007 | |
| Was the equipment in service and being used to generate revenue? If so, it's on the Schedule C. If not, then nope. | |
TheTinCook (talk|edits) said: | 14 October 2007 |
| "Was the equipment in service and being used to generate revenue? If so, it's on the Schedule C. If not, then nope."
The equipment is still considered in use even if it is idle as long as it is ready to be used. Barring intent from the client to shut down the business, sell or abandon the equipment, or convert the equipment to personal use, the client will need to depreciate the equipment. So, yes he could take the depreciation. If he can't because he is shutting down the business you have to treat it as the appropriate disposition. Two possable issues I see here. First, if there is any personal use of the equipment and business use drops, that might cause some recapture if you've got listed property or Sec 179. Second, if any of the equipment is used in the clients W-2 job, then you will need to prorate the expense between Sch C and 2106. | |
