Michael T Wing CPA wrote:
- quote -

That only shows that I've been doing taxes too long! :-)

I just haven't seen anyone dispose of non-S/L property
before the normal S/L period has run out..... (believe it or
not).

- quote -

No [on recomputation], because up to the year of sale, it
wasn't allowed (due to IRC 280A's postponement) or
allowable.

- quote -

I say that a depreciation CAN occur - because of the last
sentence of section 280(A)(c)(5), which says, "Any amount
taken into account for any taxable year under the preceeding
sentence shall be subject to the limitation of the 1st
paragraph of this paragraph WHETHER OR NOT [emphasis added]
the dwelling unit is used as a residence during such taxable
year." Obviously, if it were previously sold, it's not a
current year residence, yet it still can be taken, subject
to the income limit of the activity.

I agree that it wouldn't taint any current/subsequent
residence with the 25% recapture. Depreciation deferred and
actually deducted after the sale will never be recaptured!
(Strange result, I admit.)

- quote -

the situation and permits the carryover to survive (as per
the subsection quoted above). Your position may be the
"ethical" outcome, but since when is the tax law ethical?

[I'm only checking in once per week now.]

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

D. Stussy <kd6lvw[at]bde-arc.ampr.org> wrote:

- quote -

Yes, if it's MACRS. See IRC 168(d)(4) (I think).

- quote -

Generally, yes. But in the case we're talking about (home
office), the "recapture" would be limited to a 25% tax rate.
In fact, let me ask this: Can you IGNORE the depreciation in
the year of sale and thereby avoid the 25% recapture related
to it???

- quote -

I think it terminates (the depreciation carryover, at least)
due to practicality. If I sell my house while a depreciation
carryover is in place, and later use that carryover,
wouldn't I have to go back and re-compute the gain/loss on
the sale of my house and (especially) deal with the 25%
recapture issue? Or are you suggesting that my NEXT house
would bear the "taint" of the 25% recapture related to my
LAST house? Or, what if I don't purchase another house? Can
a depreciation deduction be allowed/allowable if there is NO
ASSET that suffers a corresponding basis reduction?

After giving this further thought, I stand by my statement
that the depreciation carryover goes up in smoke upon sale.
If someone can get a better result than that in tax court,
I'll buy 'em a 12-pack of Mars Bars! <g
MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA wrote:
- quote -

I don't see where the use in 280A is tied to a particular
activity.

IRC 280A(c)(1)(A) "... for ANY trade or business of the
taxpayer," ... Similarly with (c)(2) for storage of
inventory use.

- quote -

I agree that with business use of home, the carried amounts
are not freed up, but they do not disappear either.

Some years ago when Mr. Andre Re (one of the IRS speakers)
was still doing the Nationwide Tax Forum circuit, I asked
him what he thought of this (1999?). I told him that I
couldn't find anything that forbid a taxpayer from carrying
(unused) a business-use-of-home expense for years after a
home business (e.g.) failed and then offsetting it with
income from a new home-based business started years later.
He couldn't suggest anything wrong with that analysis
(either then or later).

The part of 280A(c)(5) that ends, "... whether or not the
dwelling unit is used as a residence during such [suceeding]
taxable year[,]" implies to me that the carryforward clearly
survives both the sale of the residence and the secession of
the business activity (or the use of the residence in the
activity), and therefore does not "die" upon sale or closing
of the business.

However, I'm not concerned with that outcome; my original
question being the YEAR characteristic of the depreciation
carried upon sale. Thanks for your input.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA wrote:
- quote -

1) You take depreciation in the year you dispose of the
asset? Interesting. Wouldn't this simply wash with its
recapture on form 4797, where, if included, increases the
recognized profit on sale by the same amount?

2) I disagree with the unused depreciation "going up in
smoke" - but it carries on to the next year (ad infinitum if
appropriate) and to the next house, until there's another
business/rental activity that comes along that can use it.
I don't see anything in IRC 280A that terminates it upon
sale of the residence.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Arthur L. Rubin wrote:
- quote -

Yes, it is possible to have expenses and depreciation
carried forward to a period AFTER the home which generated
the "business use of home" elements is sold.

Another possibility is that a taxpayer has a home business,
generates some of these excess items, then stops the
business. Technically, they are then bound to file a form
8829 for the rest of their lives, or until some other
business use of home comes along with a net profit (without
regard to this carryforward) to absorb [part of] it. So, if
someone starts an unrelated home-based business, it's
possible to have existing offseting deductions at the start
- and it need not even be the same home!

- quote -

If those losses do not come out upon "complete disposition
of the activity," then yes, they could be in a similar
situation. However, how many PALs other than renting out
rooms in one's house are likely to have that (and for
renting, also exceed the $25k maximum allowable loss when
not disposed of)?

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

Agreed. I didn't consider that the business might be
continuing.

- quote -

Yeah, like, can you deduct a depreciation carryover that was
generated by a property you no longer own? I would think
that claiming such depreciation would require a
recalculation of the gain/loss on the property sold, and
that would likely result in an additional 25% recapture
(bummer). The practical answer is that I would walk around
this one (NOT claim such a deduction). <g
MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA wrote:
- quote -

My question didn't specify, but the sale of the property
does not necessarily indicate the close of the business.

Clearly any losses suspended under 280A NOT due to
depreciation can be taken against business income, even
after the sale of the property. It's depreciation that
bothers me.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

My understanding is that suspended deductions under 280A
simply disappear after the property is sold. These
deductions are ALWAYS limited to the amount of income
generated by the business activity, and sale of the asset is
NOT counted for that purpose.

- quote -

With a passive loss situation, the suspended losses ARE
freed up upon sale of the asset.

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

D. Stussy <kd6lvw[at]bde-arc.ampr.org> wrote:

- quote -

I haven't done my own research, but based on what you've
presented I would agree.

So, how would this be handled: You sell your home in 2003.
At the time of sale you have a $1,000 home office
depreciation carryover from pre-1997, a $800 carryover from
post-1997, and a current year (2003) depreciation deduction
of $200. Your net business income before considering HO
depreciation is $1,000. How much depreciation is subject to
the 25% recapture on your 2003 return ???

My guess would be $200 (the current year depreciation). The
balance of your net business income is offset by the PRE
1997 carryover of $1,000, reducing it to zero. None of the
POST 1997 carryover is deemed applied. (And, by the way,
$1,000 of depreciation deductions [$200 pre, $800 post] goes
up in smoke.)

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

D. Stussy wrote:

- quote -

I have a question on this, and a possibly related
tax question.

My recollection is that this suspended depreciation
remains suspended even after the sale of the underlying
property. Is this correct, or is my memory going?
(They say memory is the second thing to go....I forget
the first.)

And the same question comes to mind in regard
losses suspended due to the passive loss provisions.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Suppose someone has had a PRE-May-1997 home office where on
account of IRC 280A rules, not all (or even any) of their
pre-1997 depreciation was deductible in a pre-1998 year but
is being carried forward on form 8829, line 42 (for 2003).
Suppose in a post-1997 year, a really good year occurs and
the depreciation carryforward amount is reachable as a
deduction (in part or full; doesn't matter).

Q: For purposes of pre- or post-May 1997 depreciation, what
is the character of the depreciation in the carryforward?

My A: I believe that the character of the depreciation is
the year for which it is tied to under IRC 167/168's
depreciation schedule, and IRC 280A doesn't change this
character but merely postpones the deduction to a later
year. However, for the deduction of any year, the current
depreciation scheduled for that year is considered as used
before that from the carryforward, and within the
carryforward, the earliest year first. I don't see the
deferral of the deduction (from the income limitation) as
changing its character as to its scheduled year.

[Although neither the IRS nor Congress has specifically
stated this, there may be an implication from the ordering
of lines on form 8829 that request the entry of current year
expenses and depreciation before that of their tiered
carryforwards. I do note that IRC 280A(c)(5) doesn't say
anything more than "...shall be taken into account as a
deduction ... for the succeeding taxable year" in creating
the carryforward provision, and that IRC 170(d) seems to be
the only carryforward provision where the year of
origination remains relevant, at least as far as statute
states (even though not a depreciation section). IRC
179(b)(3)(B) also has an ordering of current year before
carryforward - by using the word "increase[d]" in the manner
that it does. Notice that in IRS Publication 523, there are
no examples containing pre-1997 business use. This issue
may also be too new to have a Tax Court decision.]

It's possible that Congress meant the year of actual
deduction, not the year for which it was scheduled w/o
regard to IRC 280A. However, I see nothing to indicate that
this latter interpretation is the case either. IRC
121(d)(6) says, "... depreciation adjustments ATTRIBUTABLE
to periods after May 6, 1997, ...." (emphasis added and
parenthetical deleted). To me, attributable does not mean
the actual year of deduction, but the year which was
scheduled, since that is what SOURCED the deduction. If
they meant the year of actual deduction, I'm certain that
they would have returned to our favorite phrase, "allowed or
allowable [after May 6, 1997."

Why should this matter? Because for IRC 121 purposes,
pre-May-1997 depreciation is not recaptured. If my answer
offered above is correct, that means that years after 1996
may have depreciation deductions for business use of home
that should NOT be recaptured in full, because they
represent deferred depreciation scheduled before the magic
date.

Comments?

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->