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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2429
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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In November 2007 i bought an excavator for $125000. I claimed

Customer Question

In November 2007 i bought an excavator for $125000. I claimed 29,000 in depreciation for 2007. I am currently trying to sell the machine for $80,000 and can not find a buyer. I owe $84,000 on it. Can i Claim $40,000 in depreciation on my 1040 Schedule C line 13? I generated about $15,000 in revenue for 2008 using that machine.
Submitted: 8 years ago.
Category: Tax
Expert:  Anne replied 8 years ago.



Thank you for using justanswer. Depreciation tables are prescribed by the IRS, and since you placed into service (purchased) your excavator in the 4th quarter of 2007, you must continue to use that 4th quarter depreciation. This would mean that the % for depreciation for 2008 would be 38% or $47,500. ($125,000 X .38)


Although this may create a loss on your Schedule C, it is considered a "paper loss". These losses are acceptable as long as you have the intention, and are continuing to take steps to run this as a business vs a hobby. (Business intention would include, but not be limited to things such as spending time advertising your business. taking steps to show that you eventually plan on making the business profitable, etc.)


If you sell the excavator, you will need to adjust the basis (cost) by the $ amount of depreciation allowed or allowable, so you're really better off to take the depreciation during the years your in business.


Please see below for more in depth information


Small Business Taxes & Management


Tax Advice for Starting, Operating or Closing a Small Business


I hope this helps.

Anne and other Tax Specialists are ready to help you
Customer: replied 8 years ago.
My intention is to make it worth owning this machine. For us to rent the machine it would cost about $40,000 per year. To own it and pay on it costs us $22,000 per year. Is there any tax advantage to renting/leasing rather than owning?
Expert:  Anne replied 8 years ago.

Hi again


Sorry for the delay. This is a great question. If you rent the machine, your initial cost outlay would be much less than if you purchased it, and you may write off the cost of the rent on your Schedule C, along with any associated expenses (such as gas, oil, etc)


However, if you purchase the machine, then you too might be able to generate income by renting this machine out to others. Since you stated that you can't sell it for $80,000 you might find that once you add up all the rental income over a period of time that your income from renting it may very well exceed the cost you could have gotten had you sold it.


As long as you own the machine and either use it in your business or lease it out, you will still be able to depreciate the machine. You will also be able to claim any expenses associated with repairing the machine and in keeping it in good running order.


You may deduct any costs associated with advertising the rental of the machine.


If you have a flat bed trailer that you use to haul the excavator from job to job, even for rentals, you may depreciate the cost of the trailer, and you may also deduct the standard mileage rate if you haul it to more than 1 place a day.


If you have a loan on the excavator, the interest you pay on that loan would be considered business interest and would be fully deductible on Schedule C.


So, if you think that you will only use the machinery for this one job, then leasing it might be a smart move, but if you think that you might actually find a market to lease it to others, then that may prove more profitable in the long run.


I hope this has given you some new information to think about.