Posted by Mike (WA) on April 04, 2012 at 09:23:34 from (69.10.196.49):
In Reply to: Re: Cash sale posted by LAA on April 04, 2012 at 09:03:28:
Yeah, if he doesn't meet the income threshold to file, then its all a moot point.
But IRS is strange duck- If he was filing (or should have been), they want you to depreciate equipment used in a business or farm, even if, in the long run, it would have made no difference tax wise. If you're audited, they'll reconstruct it, back to the date of purchase, set up a depreciation schedule, give you the deduction in each of the ensuing years, then charge you depreciation recapture in the year of sale (up the the amount you had depreciated), then capital gain on any amount you received in excess of the purchase price.
You wouldn't get far with the argument that the baler is a "personal" item so long as you don't sell hay (I'm assuming he fed the hay to the calves). Anything used for the production of income is a depreciable asset, in the eyes of the IRS. Of course, this only comes up if you are required to file.
One side note- This whole thing only comes up when you sell the piece of equipment. Nothing says you have to depreciate it, if you plan on keeping it forever. It certainly is to your advantage to depreciate it, to get the tax deduction- but it only becomes an issue if you sell it.
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