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How do handle the disposal of a partically depreciaded

Customer Question
capitol asset? We tore down 4-...
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: 2 years ago.Category: Tax
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Answered in 1 hour by:
10/27/2015
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,877
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi,

...

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.

...

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.

...

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:

...

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

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

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

...

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

...

Let me know if you have questions

...

Lane

..

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Customer reply replied 2 years 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
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years 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.

...

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

...

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.

...

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

...

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

...

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

...

See this:

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

...

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

...

Lane

.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

Hi,

….

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

….

Did my answer help?

….

Let me know…

….

Lane

...

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Lane
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