Originally Posted by geoffoto
Thank you for that thorough explanation. I do have a sole proprietorship. I guess what I'm wondering is this: During the two years I took a depreciation deduction for the astrophotography gear expecting to use it to extend my business, I benefited to the tune of probably a couple thousand dollars in deductions. The IRS allows losses for a while as long as the equipment generates a profit after 3-5 years (?). Now that I am considering closing shop altogether after just two years, would I owe the IRS any of that money back?
in youir case, No unless your capital gain exceeds you r capital losses on disposition of business assets; A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable and is taxed at 25% aslongas your marginal tax rate is higher than 15%.so unless you have gain , you are not liable for sec 1245 deprecation recap tax. Depreciable personal property (Section 1245 property) includes items such as machinery, equipment, furniture, and other items subject to an allowance for depreciation.In the case of a sole proprietorship, a sole proprietorship is a form of unincorporated business that acts as an alter ego of the owner and reports its related business income or losses on the owner's individual income tax return. A sole proprietorship can depreciate business assets, i.e., vehicles, equipment, computers, furniture and real property, purchased for the business purposes. Sole proprietors, like other business owners, often have a choice regarding how to depreciate an asset. For instance, say, the irs allows an immediate Section 179 depreciation deduction for the cost of new or used equipment up to a certain dollar amount. Also, there is a 50 % first-year bonus depreciation tax deduction for qualifying purchases that can be carried forward to offset future taxable income.Since depreciation is a paper loss as opposed to a cash outlay, the choices a sole proprietor taxpayer makes regarding depreciation methods and the depreciation calculation can drastically impact the amount of net taxable income and total taxes due. In particular, the 50%first-year bonus depreciation tax deduction can result in a net operating loss that can be applied to other sources of income, resulting in a lower overall tax burden for the sole proprietor taxpayer.however aslongas as you have $0 income and expenses so net operating losses thorn no sec 179 recap taxes on your return. In general, Section 179 recapture occurs when you are required to add back to income the section 179 deduction you took in an earlier year.You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV ofForm 4797.however as you take losses no need to pay back sec 179 dedcuition recap taxes