Depreciation

Say you have a 10 year straight line depreciation on a tractor, cash method. You are in your 6th year. Looking ahead at the 7th and 8th you have something coming up that will interrupt your activities to be resumed the third year and beyond.

No Schedule F filed the 7th and 8th year. On the 9th year taxes, does the/can the depreciation resume and finish out the remaining 4 years or is it kaput?

Thanks,
Mark

i am a CPA. I would still file the schedule f for those 2 years and take the depreciation.

My accountant says that plan is hinky.

I am not sure what is hinky but I will give 2 cents.

I was just reading about Depreciation Recapture for another reason.

In my reading, you can start depreciating an item once you put it in service, not when you buy it unless those are the same dates. Likewise, you cannot depreciate an item further when you take it out of service, even if it is not fully depreciated.

Check this out:

https://www.irs.gov/businesses/small-businesses-self-employed/a-brief-overview-of-depreciation

It will also link you to Publication 946.

I have not found an example that exactly matches your situation but it seems the spirit of the code is you can depreciate when you are benefiting from or using the item in your business. That is you are consuming it's servicable life. So it would seem to me you cannot depreciate those two years. On the other hand some like to push the gray areas.

Good luck.

Paul

Depreciation is a use it or lose it concept. If you don't claim depreciation the two years the property is idle, you lose the depreciation thereon.

Idle property is not property you've taken out of service. If you've sold or scrapped the property it's out of service. If it's not currently being used and waiting for the right time to be used again, it's idle property and depreciable.

If you haven't permanently closed your business in years 7 and 8, file the Sch F and report the depreciation. Talk to a knowledgeable tax adviser who is familiar with your tax situation re what to do with the ensuing loss.

The previous post can't be edited and should have said. "Depreciation is a use it or lose it concept. If you don't claim depreciation the two years the property is idle, you lose the depreciation thereon [i:0aedd2584d]during years 7 and 8. Depreciation resumes in year 9 and finishes in year 10[/i:0aedd2584d]."

Picking the answer I like.....grin. What you said goes along with what was another (can't get to your name from here to quote you sir)
person's comment about something you may purchase and it sits for awhile till you "put it in service" then you set up your
depreciation......as the code states....when you put something in service..

That's my way of thinking and makes sense to me. For the years 7 and 8 it's essentially "out of service" and when you put it back in service
it resumes the depreciation schedule.

On farming and CPAs. especially urban ones used to handling "city slicker" business items, my experience is that they aren't connected to
the real world of farming! I'll take my chances reading the instructions and doing my taxes the best way I know how. Besides, if you act like
a professional, IRS treats you as such; has been my experience anyway. IRS, Social Security, Medicare, all real world professional folks. All
the media boo booing is just that. Find the other side of the story and you will probably find the reason for the problem with them.

Thanks guys for your responses.

Mark

Texasmark1, Check Break may have a point. I would hate to see you loose the 7th and 8th year depreciation because of bad advice. I have had some tax training but I am by far not the expert. I plan to do some more reading but I do recall in my training some concept of "use it or lose it" regarding depreciation.

Check Break, can you point us to any IRS code statements? Would that be in Publication 946?

Paul

(quoted from post at 09:38:04 02/11/17) I do recall in my training some concept of "use it or lose it" regarding depreciation. Check Break, can you point us to any IRS code statements? Would that be in Publication 946?
Paul

Click to expand...

After 29 years in the trenches, half of that doing adversarial tax work, I've forgotten the authority for lots of things that are written in stone so I should have kept my mouth shut. The Regs and case law will explain this best but you can still see this concept in Pub 946 that you cited to within "When Does Depreciation Begin and End?"

Pub 946 tells you depr begins when prop is placed in service, that it is continued while prop is idle, and that it ends when prop is retired from service, even if you haven't recovered your depreciable basis. Mark said he wanted to suspend depr in years 7 and 8 and resume again in year 9. That says he hasn't retired his prop from service at the end of year 6 so depr doesn't end because there's still recoverable basis (it's 10 year straight line prop). Pub 946 further requires depr in years 7 and 8 and tells you to continue to take depr when prop is idle. The tax code doesn't care if Mark can't use that depr in years 7 and 8. That ain't fair isn't a defense. If he can't use the depr in years 7 and 8, he loses it.

The problem with IRS publications is they often cannot be interpreted using plain english. They're helpful for many situations but Mark's is an oddity that is not addressed, even though it should be, because this situation happens more often than you'd think. Hope that helps.

Texasmark1, I suggest you follow Check Break's advice so you don't loose two year of depreciation. I miss spoke. Check Break is obviously the authority here.

Check Break, Yes, I know sometimes a guy wants to help but a little bit of knowledge, like me, can get a guy in trouble. Thanks for jumping in and correcting my erroneous input. I thought my logic was sound but as you said the tax code sometimes throws a curve.

I took an HR Block course one year. I did taxes one tax season for HR Block. I also have been doing my own families taxes for years. I have done a partnership, an LLC, and two trusts for many years. So I know enough to be dangerous. I do like going to the tax code to investigate topics. Yesterday I was looking at Depreciation Recapture. I even get my own copy of "The Tax Book".

It sounds like your knowledge far exceeds my own. I found your use of the word "authority" very interesting, meaning I don't understand the context you used it in.

Ya, this time of year I look at YTMAG or the Tax Code. Ha, Ha.

Best Regards.

Paul

Don't sell yourself short. Ps, llc and tr returns aren't walks in the park.

The Tax Code can be extremely frustrating, in that it often doesn't make sense until you figure out the reason for the rule (as in who benefited to everyone else's detriment). Sometimes, after you figure it out, the rule you're relying upon will be undone by another code section (the gov't-s way of making sure you don't get in on the deal).

"Use it or lose it" is just something I learned a long time ago. Now you know it too.

Thanks for the kind words. Paul

Hey guys, let's keep this going. Thanks for the input so far.

My problem is in years 7 and 8 are zero income to offset depreciation set up for those years in the 10 year straight line schedule. Yes I know about the allowable negative 2 of 5, or 2 of 7 (forget) but suppose I had a couple of them AND the 7 and 8th year abstinence. I don't want that and was thinking if I just didn't file for 7 and 8 those negative number for those years wouldn't be added to the pile. I have been upgrading my equipment since 2005 and carry a pretty good depreciation.

Comments?