Depreciation - Vehicle & Home Office

[Crank]

Hi All;

I have some questions regarding depreciation of a vehicle and a home office. Classification of depreciable items is one area I find myself second guessing and I would really appreciate your comments.

I have a new client who has a 2006 Van being depreciated and a small home office (2.5%). The client got divorced in 2009 and sold his home which was jointly owned with his spouse. I am waiting for the depreciation tables from his prior tax preparer.

My concerns are:

1.) 2006 Van, in service 10/06, set up as 5 year 200DB/MQ. On the ATX "Asset Entry" form, Item 4 Asset Category I used "V - Vehicles" and I am unsure on what to put in for Item 5 - Asset Subcategory. Do I use "2" - 5 yr. Qual non personal use vehicle or "7" -Truck, Van on truck chassis or some other category?

Also, Since the method is 200DB should this years depreciation be less than last years depreciation?

Also, Since the van is being depreciated he cant deduct the loan payments, correct? Only the interest on the loan, correct?

2.) Form 8829 - Part III - Depr of Home. Since the home was sold on 6/29/09 whats the proper way of calcualting only the 1/2 years worth of Depr?

Also, Since the home was jointly owned with his wife do I need to split the recaptured depreciation gain on the home sale 50/50 with his wife or can I give all of it to my client since it was his business?

Thank you for your help on this!

[Crank]

Can someone please help me with this?

[Terry D EA]

1.) 2006 Van, in service 10/06, set up as 5 year 200DB/MQ. On the ATX "Asset Entry" form, Item 4 Asset Category I used "V - Vehicles" and I am unsure on what to put in for Item 5 - Asset Subcategory. Do I use "2" - 5 yr. Qual non personal use vehicle or "7" -Truck, Van on truck chassis or some other category?

You would use the 5yr Qualified non personal use vehicle. You need to determine if this vehicle is a personal vehicle and if so, what the percentage of business use is. You will need to see what the amount of the accumulated depreciation is so the program will calculate the depreciation for 09 correctly.

Also, Since the method is 200DB should this years depreciation be less than last years depreciation?

Typically, yes if MACRS is used. MACRS depreciation is based on a percentage and the tables can be found in the publications. I think it is Pub 945 on How to depreciate property. Again, I suggest getting the previous depreciation documents to see what methods were used.

Also, Since the van is being depreciated he cant deduct the loan payments, correct? Only the interest on the loan, correct?

You cannot deduct the payments for the van, only the interest if the van was purchased and owned soley by and for the business. If this is a personal vehicle, then only the percentage of business use would be used to deduct the business portion of the interest. Remember, the cost of the vehicle is being recovered through depreciation and deducting the payments would be double dipping.

.) Form 8829 - Part III - Depr of Home. Since the home was sold on 6/29/09 whats the proper way of calcualting only the 1/2 years worth of Depr?

The yearly depreciation total divided by the number of periods the asset was used in your case it is 6 months or simply divide by 2. Example: 1200.00 annual deprecation for six months = 600.00. They are filing a joint return and the recapture will be calculated on Schedule D and flow to both of them.

[Crank]

Terry;

Thank you very much! I greatly appreciate your help on this matter!

No they are filing seperate returns and I am not doing the spouses return. So do I give all of the recaptured home depr to my client who is the buisness owner? Or give him half and hope the wife picks up the other half?

[Terry D EA]

Assuming the home that was sold was "their" primary residence then no taxable gain on the sale so I would report the sale on his return. Also, because it was "his" business then I would take the recapture on "his" return. Hope this helps.