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Gain on sale of 179 asset

Technical topics regarding tax preparation.
#1
LW25  
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My 2018 Proseries program for form 1065 wants to treat gain on disposition of an asset having zero basis (because the entire original cost was taken as 179 expense) as a non-taxable gain. Proseries is showing the gain on line 6a of schedule M-1.

My understanding is that a gain on a sale of a 179 asset is taxable as ordinary income.

Who is right? Me? or Proseries?
 

#2
LW25  
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PS: I'm using the phrase "179 asset" colloquially, to refer to an asset that has zero adjusted basis, because the entire cost was taken as a 179 deduction.

I note that CCH agrees with me:

[ . . . ] gain on a disposition of section 179 property that is section 1245 property is treated as ordinary income to the extent of the section 179 expense allowance claimed plus any ordinary depreciation claimed.


--from the 2019 Wolters Kluwer (CCH) U.S. Master Tax Guide, paragr. 1208, on page 461.
 

#3
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Don't skip past Code § 179(d)(10):
Recapture in certain cases
The Secretary shall, by regulations, provide for recapturing the benefit under any deduction allowable under subsection (a) [of Section 179] with respect to any property which is not used predominantly in a trade or business at any time.
As I remember it, those Regs are just the beginning of the fun.
 

#4
LW25  
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Harry Boscoe wrote:Don't skip past Code § 179(d)(10):
Recapture in certain cases
The Secretary shall, by regulations, provide for recapturing the benefit under any deduction allowable under subsection (a) [of Section 179] with respect to any property which is not used predominantly in a trade or business at any time.
As I remember it, those Regs are just the beginning of the fun.


Yeah, but I'm just looking for some authority for the position that a gain on a sale of section 179 property having zero adjusted basis is somehow non-taxable.

I don't see anything about that in the Tax Cuts and Jobs Act. I figure that if I'm missing something, the most likely place it would be would be somewhere in some of the most recent changes in the law. But, I don't see anything yet.
 

#5
Doug M  
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It's taxable, ordinary income. Not familiar with Proseries.
 

#6
adamant  
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LW, there may be some confusion there. If I recall, it doesn't show up on Schedule K, and thus doesn't show up as a sale of an asset in the usual sense, but the K-1 should have a schedule attached that shows the historical asset info, §179 expense taken, etc., to each shareholder/partner.

This is my understanding, I've only run into it once, but the following is an example:
- TY 2017 I am a 50% owner of an asphalt striping business that §179 Expensed 100,000 in assets, I get $50K of §179 on a K-1.
- TY 2017, I'm a little miffed, because in my 100% owned Excavation company, I already maxed out my §179 at 500,000, so now I have excess §179 expense that is suspended

- TY 2018 - The asphalt striping business decided to sell the 100,000 asset that was written off last year using §179. The business has no way to know whether my §179 expense was suspended last year, so it is required to flow out the information separately so the result can be properly calculated

Hope that helps
 

#7
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...but I'm just looking for some authority for the position that a gain on a sale of section 179 property having zero adjusted basis is somehow non-taxable.

You just keep lookin', LW, and I'll go to the refrigbprerator for a beer or two or three...
 

#8
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my recollection is that the 179 expense is taken on the individual return and recapture would be recognized there as well. The entity would have no idea what the partners did. Partner with no income might very well still have expense suspended.
 

#9
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Et voila! It's not the recapture of the Section 179 amount that creates the reporting complications, it's the fact that the recapture is being reported by a pass-through entity and that the entity doesn't know - isn't expected to know, really - what's the situation with the "flow-throughee" [did I just invent a new one?] and the Section 179 amount. The 1065 and the 1120S and their Schedules K-1 struggle mightily to deal with the flow-through of the recapture.

A colleague of mine many years ago had worked in the Forms Division of the Treasury Department in DC, and Man, some of the stories he would tell us!! Those guys and gals didn't go into the IRS forms instructions for the answer to a question, they went in there for the answer to *every* question.
 

#10
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adamant wrote:LW, there may be some confusion there. If I recall, it doesn't show up on Schedule K, and thus doesn't show up as a sale of an asset in the usual sense, but the K-1 should have a schedule attached that shows the historical asset info, §179 expense taken, etc., to each shareholder/partner [ . . . ]


No there is no confusion. You're helping me make my point: Proseries is not showing the sale of the section 179 asset, or the gain on the sale of that asset, in the attachment to the K-1 schedule. How is the partner supposed to know what to report?

In effect, Proseries is treating the sale as non-taxable. As best I can tell, Proseries is wrong.
 

#11
LW25  
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Dennis2 wrote:my recollection is that the 179 expense is taken on the individual return and recapture would be recognized there as well. The entity would have no idea what the partners did. Partner with no income might very well still have expense suspended.


But, the partnership should be giving the partners the information that the partnership has that is needed to prepare the partners' returns. My question is not about section 179 expense. My question is about a gain on a sale, by the partnership, of an asset having zero adjusted basis (i.e., because all the original cost was deducted under section 179). Only the partnership, not the partners, will have the information on the amount realized, the adjusted basis, and the gain on sale of such an asset by the partnership. As far as I can tell, such a gain on such a sale is taxable, and each partner's share should be reported on an attachment to that partner's K-1 schedule.

Intuit Proseries is not doing that, and (so far) Intuit has not explained why they're not doing that.
 

#12
MWPXYZ  
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Post 6 has a good explanation, Dennis also alludes to the explanation.

See K-1 instructions page 18 re Box 17 items K and L.

The software may, or may not print the schedule you need, but the taxable amount on the disposition may be different for each shareholder. So a schedule noting the original cost, dates of purchase and sale, and deduction allowed or allowable is given to each shareholder; who then on their own, must the determine the gain or recapture to report.
 

#13
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From Post #4: "I'm just looking for some authority for the position that a gain on a sale of section 179 property having zero adjusted basis is somehow non-taxable." I'm gonna guess that you've known all along that Proseries might need to participate in your search for an answer. If there is one...

I'm starting to consider it possible that the IRS failed to provide the *correct* item description for this item in the 1065's Schedule M-1. Does Proseries use the line 6a, or the line just below 6a, for the Section 179 gain?
 

#14
LW25  
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Spell Czech wrote:From Post #4: "I'm just looking for some authority for the position that a gain on a sale of section 179 property having zero adjusted basis is somehow non-taxable." I'm gonna guess that you've known all along that Proseries might need to participate in your search for an answer. If there is one...

I'm starting to consider it possible that the IRS failed to provide the *correct* item description for this item in the 1065's Schedule M-1. Does Proseries use the line 6a, or the line just below 6a, for the Section 179 gain?


Proseries uses the line just below 6a, and the program does describe the item as "Gain (loss) on Disposition of Section 179 Assets". The problem, of course, is that Proseries does not attach, to the K-1 for each partner, the detail that the partner will need to determine the treatment of that partner's pro-rata share of the gain, if any. We ended up preparing the return for manual filing, and we manually added the information on each K-1 attachment.

MWPXYZ wrote: [ . . . ] The software may, or may not print the schedule you need, but the taxable amount on the disposition may be different for each shareholder. So a schedule noting the original cost, dates of purchase and sale, and deduction allowed or allowable is given to each shareholder; who then on their own, must the determine the gain or recapture to report.


Which brings me back to my point: The partnership should provide that data to the partner, as an attachment to the K-1. Proseries is not doing that. The entry on Schedule M-1 does not satisfy that requirement.
 

#15
Noobie  
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How many years was the asset held?
What type of asset was it?
 

#16
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LW25 wrote:Which brings me back to my point: The partnership should provide that data to the partner, as an attachment to the K-1. Proseries is not doing that. The entry on Schedule M-1 does not satisfy that requirement.


Agree. ProSystem fx (now Global Axcess) prints a supplemental statement that is part of the K-1. The disposition is not reported on F1065 since Sec. 179 is a separately stated item.
 

#17
RowTax  
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I'm pretty sure my copy of Proseries prints an attachment for each K-1 for the 179 recapture
 

#18
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From Post #4:
I'm just looking for some authority for the position that a gain on a sale of section 179 property having zero adjusted basis is somehow non-taxable.

Seems to me you're still looking.
 

#19
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I would be surprised if there were not a way to attach a manually prepared schedule to each partner's k-1. The current year software might not have the appropriate information information but he who prepared the return with the §179 deduction does not have that excuse.
 

#20
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Harry Boscoe wrote:From Post #4:
I'm just looking for some authority for the position that a gain on a sale of section 179 property having zero adjusted basis is somehow non-taxable.

Seems to me you're still looking.


He’ll be looking for a long time :lol:
 


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