Well, color me embarrassed! I got into an argument with TurboTax about some machinery I sold to Aaron as part of the transition on our farm. The stooopid program taxed the sale as ordinary income, instead of the relatively delightful 15% I had planned.
Only capital gains on depreciable property aren't like capital gains on say, shares of stock or farmland.
The income tax consequences of an outright sale can be substantial, as shown in Example 2. For the seller, a large amount of recaptured depreciation and capital gain may arise from the sale, especially if some assets have an adjusted tax basis of zero; that is, they are "depreciated out." Reporting all the income and gain in one tax year may cause some of it to be taxed at a higher marginal rate than the seller usually pays. In addition, most sellers prefer to spread out or postpone tax payments whenever possible. [More]
Which is exactly what TT calculated. All my stuff is depreciated out, thanks to Sec. 179, and all the various bonus depreciation boondoggles of the past few years. And I didn't sell any of it below above original cost.
I guess I can keep working for another few years...(sigh)
Feel free to hoot with derision at my ignorance.
My so-called friends did...
8 comments:
Don't know what you are complaining about. You are approaching the wealth level of the reviled 1% and are obviously not paying your fair share. You have unjustly benefited from the Sec 179 laws purchased by your corrupt special interest friends who have trampled on the heads of the common man all so you can live your privileged life.
Fortunately, we are not quite to the point while you will be drug before the tribunal to account for your privileges with your life.
Some of your comments decrying the arrogance and hypocrisy of the farmer might be used against you even though it would be a nasty irony.
It is a bit of fun to compare your commentary in your blog and on your show with your complaint here. You seem to have joined some of those farmers that you condemn.
anon:
I know I invited derision but having re-read my hasty post, I don't see much complaining about the taxes. I see the painful admission of ignorance of the tax law.
The tax makes sense (as much as any do) but I had thought I knew how it works, but don't.
The extra working line was intended to point out the consequences of my mistake, not gripe about the ruling.
Indeed, those of us in this situation are really being surprised by the value of our used machinery, which has little to do with depreciation rules, and more to do with our booming sector.
What I said was tongue in cheek. It was an attempt to mock the complaints so many level at the farmer. Those complaints have come from many a person, including the farmers themselves.
John,
My son's law school class last semester on the Federal Tax code led to several conversations between us about this very topic. He was confused by the IRS definition of Capital, which is much narrower than an accounting definition. You could have just utilized the current $5 million gift limit and completely avoided the ordinary income tax!
Bob:
We've already used the transition tax window for land. And frankly, after that I need the money from the machinery.
We are financing it ourselves so the debt will probably be a part of our estate. That also seems fairer to our off-farm son.
John,
If you had known about the tax effects of selling depreciated property, you could perhaps have changed the mix of gifted land and equipment for your farming son and enjoyed capital gains tax on appreciated land.
I was just curious which turbotax you used?
IN:
Home and Business - this has worked well for years. At least I haven't had any feedback from the customer (IRS).
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