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How do I account for an asset under Section 179? And then sold?

Forum|Forum|7 years ago
December 11, 2018
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I am trying to get an understanding of how to account for assets under Section 179.
I have a handful of vehicles that were fully taken under Section 179 for taxes, the result is a $0 Depreciation basis for tax purposes. I would like to mirror this in my Quickbooks. How do I record this section 179 reduction to the fixed asset basis?
Then, how do I record the sale of these vehicles (this is my main focus - these assets are gone but sitting on my BS)?
Currently, I have assets sitting in my fixed assets at full value that should have a full reduced basis due to the Section 179 and I have sold them.
For example: For simplicity lets say I purchased a vehicle for $1,000 with a 5 year life, I took section 179 and reduced the basis to $0 in the first year - how would this be recorded/reflected in Quickbooks if I want to mirror my taxes?
Someone mentioned creating an additional account called "Basis Reduction" - I assume this would be to reduce the fixed asset account for each asset (Dr Basis Reduction Acct, Cr Fixed Asset Vehicle), but would type of account would this be (equity)?
Thank you so much for your help!

QuickBooks Desktop

Best answer by Rustler

@ book

I have a handful of vehicles that were fully taken under Section 179 for taxes, the result is a $0 Depreciation basis for tax purposes.

No, it means that the book value of the asset is zero. Cost and depreciation are equal. when you took section 179 accelerated depreciation you should have entered it on the books. Journal entry, debit depreciation expense, credit accumulated depreciation.

Your question about selling a section 179 vehicle is much more complicated. Section 179 depreciation assumes a certain period for that type of fixed asset. If you sell the asset before the end of that period then on the income tax form you have to re-capture the depreciation amount applicable to the time period you no longer have the asset - re-captured income is the result. You do not get all of the expense you took that first year in other words.

On this issue you need to consult a tax accountant.

RustlerAnswer

@ book

I have a handful of vehicles that were fully taken under Section 179 for taxes, the result is a $0 Depreciation basis for tax purposes.

No, it means that the book value of the asset is zero. Cost and depreciation are equal. when you took section 179 accelerated depreciation you should have entered it on the books. Journal entry, debit depreciation expense, credit accumulated depreciation.

Your question about selling a section 179 vehicle is much more complicated. Section 179 depreciation assumes a certain period for that type of fixed asset. If you sell the asset before the end of that period then on the income tax form you have to re-capture the depreciation amount applicable to the time period you no longer have the asset - re-captured income is the result. You do not get all of the expense you took that first year in other words.

On this issue you need to consult a tax accountant.

B

BookHappyAuthor

Thank you for your response!
I am going to circle back to the tax accountant about when (what year) the section 179 was taken. The issue is that the Debit Depr and Credit Accum Depreciation was never done. So I am wondering if it would be incorrect to do it in the current year so that I can record the sale/disposal - Debit Accum Depr and Credit Asset (Loss/Gain where needed) - thoughts?

qbteachmt

"Depreciation expense - the IRS does not care if you take it or not during the period you should."

Actually, yes. You cannot "skip" it. I didn't assume it was never put on a tax form; I was following up with How to do it in QB, because this is a Tax Guidance forum, but a QB forum.

"How you make entries to use an expense/contra asset entry, that does not apply to current operations, when selling the asset, is beyond me"

You can put any missing info into QB, and you do so relative to what it is. If you don't Have the info, that is an entirely different consideration.

It is time to stop using a QB forum for a Tax Guidance condition.

Rustler

>>>the IRS does not care if you take it or not during the period you should." ...... Actually, yes. You cannot "skip" it<<<

While I agree that there is nothing stated in the IRS pubs that specifically states they do not care if you take depreciation expense, the implication is there on page 6 of IRS Pub 551 - cost basis>Depreciation

-------snip------
If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken.
--end snip-------
Noting is said about any kind of penalty for not taking an expense
And logically, not claiming an expense is something beneficial to the IRS, net taxable income is higher.

>>>You can put any missing info into QB, and you do so relative to what it is. If you don't Have the info, that is an entirely different consideration.<<<
Yes I know you can make any entries you want - my statement was how to get the cost basis of an asset to reflect the real lower basis that it has for taxes - withOUT affecting current OR past financial statements. Changing past financial statements would require an amended return per year changed - AND you can only amend up to 3 years back.

>>>It is time to stop using a QB forum for a Tax Guidance condition. <<<<
Did you read my original statement at all???

<<<<On this issue you need to consult a tax accountant.>>>>

What kind of tax guidance do you consider that to be ?? Why is that recommendation improper in your view?

qbteachmt

I typically put the Purchases (cost basis) as Fixed Asset, so that it is Found later, even if the amount is totally taken as Accelerated Depreciation Expense. That way, you have the Clarity.

Vehicle Parent Level Fixed Asset
Subaccounts: Cost and Depreciation

The Purchase is Cost = Debit the Cost Fixed Asset Account
The Depreciation taken as expense = Credit to the Fixed Asset account

Never post to the Parent Level; it will be the Net of both.

Equity is not involved here.

B

BookHappyAuthor

Thank you for your response!
I am not understanding how you are suggesting to adjust the fixed asset - are you saying that you are creating sub-asset accounts and not hitting an expense account with the Depreciation Expense at all? How would you do that - Debit sub-asset acct Depreciation and Credit Accum Depreciation? That would increase the asset account...?
The Depreciation taken as expense = Credit to the Fixed Asset account
What about the accum depr acct would you just skip this?

qbteachmt

Here is why this is confusing:

"I am going to circle back to the tax accountant about when (what year) the section 179 was taken. The issue is that the Debit Depr and Credit Accum Depreciation was never done."

But, it Was Done = taken, if it is reported under Sec 179. The issue remains as to how it appears in QB, which we cannot even see.

qbteachmt

"The issue is that the Debit Depr and Credit Accum Depreciation was never done."

Get the tax forms and catch up the bookkeeping. Date it correctly for the reporting.

"are you saying that you are creating sub-asset accounts and not hitting an expense account with the Depreciation Expense at all?"

No. You provide Cost. You cannot enter Depreciation without offsetting that to Expense, but historically, it is Retained Earnings, now. All historic expense is in Equity, now. If you are catching up the entries with Historic dates, it is expense; if Now, it is Prior Equity = Retained Earnings. It depends on what you are entering: historic data or Missing data.

"How would you do that - Debit sub-asset acct Depreciation and Credit Accum Depreciation?"

I don't know if you are asking about the Missing info or the sale; I don't know if you just described 2 fixed asset accounts, because those are only Names. Sorry.

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