Depreciable Assets of Failed Business

[GraceNY]

Taxpayer opened and closed sole proprietorship in 2012.

Expenses included the purchase of a computer and printer. Since business closed, she has

has been trying to sell these assets.

Presuming this failed venture was a real business and not a hobby, how should these asset

expenses be handled on the 2012 return?

Usually you recover costs for a particular asset through depreciation.

Can a depreciation expense be taken? Or is this considered "property placed in service and

disposed of in a same year" and, thus, not eligible for depreciation? But was it really "disposed"

of or was it just "taken out of service" when the business closed. My understanding is that a

disposition occurs when property is permanently withdrawn from use in a business because

of a sale, exchange, retirement, abandonment, involuntary conversion, repossession or

destruction. None of these took place.

If the business had never started, then the costs of assets acquired during her unsuccessful

attempt to go into business are part of her basis in the assets and no deduction can be taken

for these costs. The cost of these assets would be recovered when asset is sold. In other

words, she needs to sell the asset in order to recognize the loss. This, however, is not the'

case. The business did start.

How about, depreciation expense (MACRS, not 179) on 2012 Sch C. When business closed,

assets were converted to personal use. Sale will result in reportable gain or non-deductible

personal loss?

[kcjenkins]

I'd go with your last paragraph, since the assets were not disposed of.