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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11352
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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How do handle the disposal of a partically depreciaded

Customer Question

How do handle the disposal of a partically depreciaded capitol asset?
We tore down 4- rental houses we have owned for 15 yrs, we built a new apartment building, how do we handle the depreation, our basis
Tim(###) ###-####
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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This is just the same as when you sell the asset for a loss, but simply, in accounting terminology, scrap the asset for a loss.

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to write off a fixed asset that has not yet been completely depreciated, you write off the remaining undepreciated amount of the asset to a loss account.

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Lets say that ABC Corporation gives away a machine after eight years, when it has not yet depreciated $20,000 of the asset's original $100,000 cost. In this case, ABC records the following entry:

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Debit - Loss on asset disposal .............. 20,000

Debit - Accumulated depreciation ..........80,000

....... Credit - Machine asset ............................... 100,000

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Same here, you'll debit the loss for whatever depreciation is left on the buildings and credit the asset itself to get it off the books

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Let me know if you have questions

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Lane

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Customer: replied 1 year ago.
Hi,let me get this straight "you write of the remaining undeprecated amount of the asset"We had writen the houses depreciated down to 89K each, so now we take a one time expense of 356K (89k x 4 ) there was four houses ? Thanks Tim
Expert:  Lane replied 1 year ago.

My apologies, I was giving you the method for scrapping equipment. (Accounting entries). My mind went to the accounting entries for a similar question today regarding equipment.

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When you tear down and replace real property improvements there is a different method.

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Pursuant to IRC Sec. 280B both your remaining cost basis in the building structure and the demolition costs incurred are to be capitalized into the cost of the underlying land.

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You may not deduct currently either the demolition costs or any loss sustained on account of the demolition.

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Obviously, your costs to erect a new building are capitalized into the new structure and may be depreciated over its useful life.

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(26 U.S. Code § 280B) - Demolition of structures

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See this:

https://www.law.cornell.edu/uscode/text/26/280B

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Again, sorry for the initial knee-jerk response. Demolition of structures has it;s own specific rule.

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Lane

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Expert:  Lane replied 1 year ago.

Hi,

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I'm just checking back in to see how things are going.

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Did my answer help?

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Let me know…

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Lane

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