Recapture of Depreciation

Forum|Forum|1 year ago
February 24, 2025
1 reply
5 views

I picked up a Partnership last year (2023) that was formed in 2022. In 2022 they purchased three pieces of equipment totaling $24,679. The CPA that prepared the taxes for them that first year used a Special Allocation to completely depreciate the equipment. In 2024 the Partnership dissolved.

The equipment was originally purchased by one of the partners, and they allocated all of the depreciation to that partner. When the partnership dissolved he took possession of the equipment, it was not sold.

I believe that depreciation should be recaptured and get assessed to the partner that with the allocation in 2022.

Two part question, is my thought process correct and if so how/where do I recapture. This is not a situation that I have come across in the past.

ProSeries Professional

This topic has been closed for replies.

Best answer by Terry53029

If you received the property in liquidation of your interest, your basis in the distributed property is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.

after that it becomes personal property. if immediately sold for more than tax basis you have a reportable gain. if sold at a loss it's not deductible.

On a side note special deprecation in 2022 was 80% not 100%

T

Terry53029

Answer

Intuit Community Champion

If you received the property in liquidation of your interest, your basis in the distributed property is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.

after that it becomes personal property. if immediately sold for more than tax basis you have a reportable gain. if sold at a loss it's not deductible.

On a side note special deprecation in 2022 was 80% not 100%

lbonesAuthor

Level 6

Thanks Terry! I am trying to wrap my head around this and want to make sure that I am understanding this correctly. The equipment purchased by the Partner has been returned to him and it is now considered personal property. If and when he sells those items they will be a taxable event on his personal taxes.

T

Terry53029

Intuit Community Champion

Yes, that is IRS rules for partnerships. See link.

https://www.irs.gov/publications/p541#en_US_202412_publink1000104218

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