O/T farm tax question

morgan in ar · Mar 4, 2015

I'm getting my taxes ready to send to the
CPA, and I'm sure he will know what to do. I
just would like to know if anybody has the
answer now so I don't have to wonder for weeks
while he works on them.
I sold several pieces of equipment last
spring (tractor, tedder, haybine, square baler)
that I have had for more than ten years. All
of the equipment has been depreciated out
already. Some of it may have been expensed at
time of purchase. Will the whole sale price be
shown as income, or just the sale price above
purchase price?
Thanks- Morgan

Mike (WA) · Mar 4, 2015

He will "recapture" the depreciation taken (which will be all of it, if the equipment is completely depreciated out), and pay ordinary income tax on that amount. If you sold some for more than you originally paid for it, the amount over and above the purchase price will be subject to capital gains tax- 15 or 20%, I think, unless our fearless leaders have increased it. Again.

gwece · Mar 4, 2015

As I understand it, if it was completely depreciated out, then your "basis" is zero and it is taxable. If I remember correctly, you report it on the form below:
Form 4797

donjr · Mar 4, 2015

Once I've expensed something out, we run it until it's 'wore out', and then 'scrap it'. No gain, no tax. Nowwww..... if someone overpays me for scrap, I may take SWMBO out for dinner.....

dhermesc · Mar 4, 2015

Exactly. When depreciated the equipment lowered "ordinary" income - when sold and the depreciation is "recaptured" it will be taxed as ordinary income.

Only the amount above the purchase price gets capital gains tax rates.

morgan in ar · Mar 4, 2015

SO I have to pay on the depreciated amount? Isn't that the purchase price over seven years? It sounds like I should have let them rot in the fencerow.

Cas · Mar 4, 2015

Mike is right. Does not happen very often to me.
When it does I take the check to the bank cash it for cash and forget about it.
The IRS does not look at single items anymore. The alogorithm just sorts for anomalies now. If you give the CPA the right info he will not stick his neck out the thickness of a sheet of paper.
The exception would be if you sold a $50,000 tractor and you depreciated it for two years and it disappeared 2 years later. There is a very small chance it would get picked up.
My mother was a CPA and did our taxes until she died. We both went to the annual tax update at Cornell University every year. I do my own taxes and those for a few neighbor BTOs. In NY we pay enough user fees, real estate. sales taxes, that I feel there is no need to pay to much income tax. Been using our sysem for forty years and it has paid dividends. Not going pay a CPAs country club dues.
ps If the one in a million chance it happened to you, you would get a letter. It would say the amount of tax you owe and a 25 percent penalty. The IRS wants you working not in jail.

LAA · Mar 4, 2015

change.

Ron-MO · Mar 4, 2015

I would probably forget about it unless it is a newer pickup, or tractor. I guess I look at it differently, as I thought depreciation was just that....meaning it has depreciated the full value over time. I know I certainly get tired of paying sales taxes when I buy something like a pickup, then pay more taxes every year just so I can license it.

LAA · Mar 4, 2015

You may want to research the IRS rules on gifts, there are legitimate ways to avoid recapture taxes and not create a burden for the recipient.

Dave H (MI) · Mar 4, 2015

No...what they are telling you, and I agree with them for the most part, is that any amount you receive for a piece of fully depreciated equipment is taxable. Why you do not ask your CPA in advance for some idea...I do not know. He is the best one to answer this question. Not a real estate lawyer, not a guy whose mom was a CPA, and not even an actual CPA who does not know your specifics, like me. A lot can change results, like the type of entity you formed when you set up the farm or any losses from CG or 1231 you may have lurking from prior years. But basically, if you have a fully depreciated item and you sell it....ordinary income up to the original purchase price and capital gain income after that. SO...if it was originally $5000 and you sell it for $4K, the $4K is ordinary income. Sell it for $7K then it is $5K ordinary and $2K CG. You with me???

Dave H, CPA

Eldon (WA) · Mar 4, 2015

(quoted from post at 13:39:51 03/04/15) Mike is right. Does not happen very often to me.
When it does I take the check to the bank cash it for cash and forget about it.
The IRS does not look at single items anymore. The alogorithm just sorts for anomalies now. If you give the CPA the right info he will not stick his neck out the thickness of a sheet of paper.
The exception would be if you sold a $50,000 tractor and you depreciated it for two years and it disappeared 2 years later. There is a very small chance it would get picked up.
My mother was a CPA and did our taxes until she died. We both went to the annual tax update at Cornell University every year. I do my own taxes and those for a few neighbor BTOs. In NY we pay enough user fees, real estate. sales taxes, that I feel there is no need to pay to much income tax. Been using our sysem for forty years and it has paid dividends. Not going pay a CPAs country club dues.
ps If the one in a million chance it happened to you, you would get a letter. It would say the amount of tax you owe and a 25 percent penalty. The IRS wants you working not in jail.

There is a reason farmers have a "scrap pile" out back!

ss55 · Mar 4, 2015

Check your marginal income tax rate. If your marginal income tax rate is higher than the capital gains tax rate, you are better off reporting that income as capital gains than as income.

When you sell something with a big capital gain, look for something else to sell that has a big capital loss (ideally a loss you don't expect to recover anytime soon) and sell it in the same year. You can add your capital gains and your capital losses together to cancel out most of your capital gains for the year.

morgan in ar · Mar 4, 2015

Thanks for clearing it up.

Dave H (MI) · Mar 4, 2015

S'alright!

MN Scott · Mar 4, 2015

The deadline for farmers to file is the first of March. Your a little late.

JD Seller · Mar 4, 2015

MN Scott you right and wrong. LOL

The March 1st dead line is only if you have not paid in estimated quarterly taxes. IF you pay estimated quarterly taxes your dead line is April 15 like everyone else.

O/T farm tax question

morgan in ar

Member

Mike (WA)

Well-known Member

gwece

Member

donjr

Well-known Member

dhermesc

Well-known Member

morgan in ar

Member

Cas

Well-known Member

LAA

Well-known Member

Ron-MO

Member

LAA

Well-known Member

Dave H (MI)

Well-known Member

Eldon (WA)

Well-known Member

ss55

Well-known Member

morgan in ar

Member

Dave H (MI)

Well-known Member

MN Scott

Well-known Member

JD Seller

Well-known Member

Similar threads