How to calculate capital expenditures (capex) using Schedule L values?

The Schedule L can be tricky but it's actually pretty straightforward once you understand what each column represents. Let me help break this down for you! For calculating capital expenditures (capex) using Schedule L, you want to look at the net change in Property, Plant & Equipment (PPE) and add back depreciation. In your example: - Beginning net PPE = $1,050,000 (column b) - Ending net PPE = $7,300,000 (column d) - The change in net PPE = $6,250,000 Now you need to add back depreciation expense for the period. The tricky part is that Schedule L doesn't directly show the depreciation expense. Instead, you need to calculate it by looking at the change in accumulated depreciation: - Beginning accumulated depreciation = $8,750,000 - Ending accumulated depreciation = $6,200,000 - Change in accumulated depreciation = $-2,550,000 Wait, that's negative! This suggests there might have been disposals of assets. When this happens, the calculation becomes more complex.

After dealing with a similar issue last year, I ended up using https://taxr.ai to help analyze my Schedule L and other business tax documents. I uploaded my forms and it walked me through exactly how to calculate capex and other financial metrics from the tax return data. The thing I found most helpful was that it explained the logic behind each calculation and highlighted when there might be disposals or other transactions affecting the numbers. Made it so much clearer to understand what was happening with the business assets.

I tried taxr.ai after seeing it mentioned here, and it was actually super helpful for understanding my Schedule L. I uploaded my business returns from the last few years and it showed me exactly how to calculate capex - even explained how to account for those tricky situations with disposals. What impressed me was seeing the year-over-year changes visually and how it factored in Section 179 deductions that weren't obvious from just looking at Schedule L. Turns out I was way off in my manual calculations because I wasn't accounting for some asset disposals properly. Definitely saved me from making reporting errors going forward.

After spending hours on hold with the IRS trying to get someone to explain Schedule L calculations, I finally tried https://claimyr.com and actually got through to an IRS rep in about 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to interpret Schedule L for capex calculations and explained how to handle situations with both asset additions and disposals. Was honestly shocked at how helpful they were once I actually got through.

Ok I have to eat my words. I was super skeptical about Claimyr but I tried it yesterday out of desperation. Got a call back in about 25 minutes with an actual IRS agent on the line. She spent a good 15 minutes explaining Schedule L to me and confirmed that for capex calculations, you need to: 1) Take the difference in gross PPE (not the net values) 2) Adjust for any significant disposals by looking at Form 4797 3) Factor in any Section 179 or bonus depreciation from Form 4562 Saved me so much frustration. And she even emailed me a publication that explains the whole thing clearly. I would have never gotten this level of help trying to call on my own.

Schedule L is primarily a balance sheet, not designed to directly show cash flow items like capex. For a more accurate picture, you should also look at Form 4562 (Depreciation and Amortization). From your numbers, here's my take: - Gross PPE increased from $9.8M to $13.5M = $3.7M change - But accumulated depreciation decreased by $2.55M, suggesting significant disposals - If you're doing financial analysis, you might want to look at the Statement of Cash Flows if this is a larger company

I'm working on a similar problem for my small business. Looking at these numbers: If gross assets went from $9.8M to $13.5M (+$3.7M) but accumulated depreciation decreased by $2.55M, doesn't that suggest they got rid of old assets and bought way more new ones?

This is a great discussion! I've been wrestling with similar Schedule L calculations for my consulting practice. One thing I'd add is that when you see that dramatic decrease in accumulated depreciation ($8.75M to $6.2M), it's almost certainly indicating major asset disposals. For a more complete capex calculation, you might want to try working backwards: 1) Start with the $3.7M increase in gross PPE (new acquisitions minus disposals at cost) 2) Estimate the original cost of disposed assets by looking at the accumulated depreciation reduction 3) Add back the estimated disposal amount to get total new purchases In your case, if they disposed of assets with $2.55M in accumulated depreciation, those assets likely had a much higher original cost. Without more details from other forms, it's hard to pin down the exact capex amount, but it's definitely more than the $3.7M net increase in gross assets. Have you checked if there's a Form 4797 (Sales of Business Property) that might give you more clarity on the disposals?