300+ Tax Deductions, Part 1
Over the years, I’ve found that people often forget about some of the simplest tax deduction. So, I made a list of over 300 tax deductions. The list is part of “Loopholes of the Rich”, if you want to get the list fast. Otherwise, I hope you look forward to a discussion of these deductions over the next few months.
Abandonment of business property. If you have equipment, furniture, inventory or other assets that have become worthless, write them off! You can take a loss for these on your tax return. Loss in this case means the difference between the book value of the asset and the current value (assumably zero).
NOTE: This is a great little loophole for real estate developers. If a developer buys a property as a tear down, the goal would be to get an appraisal putting as much value in the building as possible. Then tear it down (or better yet, donate it to the fire department to burn it down) and you’ve got a huge write off!
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Diane, can you elaborate on the abandonment of property write off? By the book value, are you referring to the business’ basis in the equipment or the price you could get for selling it (e.g. appraisal value)? Let’s say I buy some office computer equipment, and then a few years later it is obsolete. If I expensed the purchase in the first year, and now it no longer meets my needs (is worthless to me from a business perspective). Do I get a second deduction for the current value when it is disposed of? How does depreciation come into play?
Diane, I’m interested in Penny’s question, also. We’ve always been able to take a Section 179 election for the full amount of equipment, etc. we use in the business on our tax return but on the financial books we show it being depreciated. I’m assuming the answer is we can’t “double-dip” because you’re talking about tax deductions in this thread. But worth clarifying.
It also reminds me that I’ve NEVER taken any fully depreciated property off of our state personal property reports. It’s one of those things that is always in the back of my mind somewhere, along with a zillion other things I should do. But since I just requested an extension on my business property tax reports I will now move that to the top of my list when they are prepared (I’ve always done them myself and now realize this would be a non-issue if I had my CPA prepare them for me!).
Penny asks: By the book value, are you referring to the business’ basis in the equipment or the price you could get for selling it (e.g. appraisal value)? Let’s say I buy some office computer equipment, and then a few years later it is obsolete. If I expensed the purchase in the first year, and now it no longer meets my needs (is worthless to me from a business perspective).
The book value means the value at which you are showing the asset. So, let’s say you bought it for $10,000 2 years ago and immediately did a Section 179, immediate expensing on it. You’d have written off the full $10,000, so the book value is zero. IRS frowns on double dipping, so you can’t take a deduction again for that.
Let’s say instead you’ve been depreciating it and you have a total of $4,000 in accumulated depreciation. That means your book value would be $6,000 ($10,000 minus $4,000)
This isn’t that big a deal of equipment, but it really could add up with real property. That’s because most of the value in the real property is depreciated over 27.5 or 39 years.
Mary says: It also reminds me that I’ve NEVER taken any fully depreciated property off of our state personal property reports. It’s one of those things that is always in the back of my mind somewhere, along with a zillion other things I should do.
What a great reminder Mary! Remember to take your obsolete and/or sold items off of the personal property statements. I think a lot of people just kind of shuffle those to the bottom of the pile and so don’t put as much attention on them as they should.
Thanks for confirming the no double dipping. That’s what I thought. But I hadn’t thought about taking a deduction for the remainder of basis for depreciated assets we might not need anymore and I can see how that could be a great strategy.
Diane,
Could you clear something up for me. If I read you correctly you said you could deduct the appraised value for lets say an existing home if you are going to tear it down and I assume build something new. Of course it would only be for the value of the structure. This is the first time I had ever herd that and I have done tear down and rebuilds before. How long has this been around and am I reading this correctly?
I’m glad you asked again Russell. You can write off the BASIS, not the appraised value, if you abandon a property. So, just like the example I used earlier of the equipment, you’ll need to calculate the basis, taking into account the depreciation to figure out how much the deduction will be.