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Posted by shedges on February 25, 2007, 4:41 am
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Regarding depreciation of asset(s) bought and sold during the same
year .... the CODE seems to allow it, as there are no restrictions
against it. The only thing that seems to be required, in order to be
entitled the expense, is that an asset be "placed in service" during
the tax year. (This is an entitlement statute) The CODE, however, does
contain many, many other restrictions and gives the Com'r specific
authority to issue certain regulations .... for example, it gives the
Com'r the power to issue regulations regarding recapture and related
party purchases intended to abuse the statute. (see IRC Sec's 167,
168, 179).
The only specific reference in the CODE to the issue of
assets bought and sold within the same tax year is IRC Sec
168(d)(3) (A) -- "For purposes of this section" ... equip
placed in service and disposed of within the same tax year
is not counted when computing the "40% rule" on last quarter
purchases (you'll recall, the 40% Rule requires the
"mid-month" rather than the normal, "half year" convention
if more than 40% of the total assets are purchased in the
last quarter of the tax year). The Com'r, in-fact, is given
specific regulatory authority "for purposes of this
section"-- referencing the 40% Rule. Curiously, the
REGULATIONS are much broader, as they specifically prohibit
the entire depreciation deduction if an asset is placed in
service and sold within the same tax year, not just for the
purposes of applying the 40% rule. This regulatory
restriction seems to be without statutory authority, as
Regulations can not create new provisions and they may not
restrict an entitlement statute unless the underlying
statute empowers the Com'r to limit the deduction (rare-
usually for anti-churning) ... but the statute must
specifically give the Com'r that specific restriction
authority-otherwise the Regulation must fall. A REGULATION
without statutory authority is unenforceable. However, in
Reg 1.168(d)-1, Example 1, it states that an asset bought
and sold in the same year is not allowed to be depreciated
-- it then references IRC Sec 168(d), the 40% rule (mid-qtr
vs. half-yr convention), not the depreciation deduction
itself.
Temporary Reg 1.168(d)-1T(b)(3)(ii) also states no
depreciation is allowed for assets bought and sold in the
same tax year - again without any reference to statutory
authority - although every other statement in that sentence
is referenced. There may be other Regs under Sec 167, 168 or
179, but I didn't find anything else that jumped out at me
... just those non-supported, off-hand remarks in the regs,
and nonsensical references to other facets of the deduction
(such as the "40% rule"). I haven't checked the all the
cases yet, just the recent Fed Tax Cases, Tax Court
Memorandums and Tax Court Reported. I've checked the recent
Conference Committee Reports for the "Legislative Intent"
aspect and found nothing-I haven't check any prior to 1996.
IN CONCLUSION, I'm thinking that a taxpayer may in-fact take
the MACRS depreciation deduction, Bonus Depreciation (30% or
50%) and the Sec 179 expense deduction even if the asset is
bought and sold in the same tax year. The consequences can
be huge, as a sole proprietor may be able to write off $100+
in Sec 179 plus regular and bonus depr. expense, lowering
his self employment social security taxable income and then
recapture the expense in the same year as ordinary income,
not subject to self employment social security tax-thus
avoiding SESS tax on thousands of dollars of, what otherwise
would be, self- employment income. My tax software
(ProSeries) does not support depreciation of assets bought
and sold in the same tax year.
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Posted by Bill Brown on February 26, 2007, 12:35 am
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The allowed depreciation deduction for an asset purchased
and sold in the same year is zero.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2006) - All rights reserved. >>
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Posted by Harlan Lunsford on February 27, 2007, 3:36 pm
Please log in for more thread options Bill Brown wrote:
> The allowed depreciation deduction for an asset purchased
> and sold in the same year is zero.
Bill is correct, even though we may disagree with the
results. If one could take depreciation on schedule c and
even then had to recapture it on form 4797, it would thereby
lower SE tax.
However.......
that's dem apples.
ChEAr$,
Harlan Lunsford, EA n LA
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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