How to claim capital losses for selling an ice vending machine at a loss

Thanks for the info. If they were depreciating it, wouldn't they also need to deal with depreciation recapture? Also, how would the IRS determine if it was "business" vs "investment" property?

So I was definitely using it as a business - it generated income that I reported on Schedule C for the past three years. I've been depreciating it each year. Does that change anything about how I report the loss? And are there any special forms needed for the depreciation recapture part?

You're right to bring up depreciation recapture, but since the machine was sold at a loss, recapture won't be an issue here. Recapture comes into play when an asset is sold for more than its adjusted basis but less than its original cost. Since you were using it for business and reporting on Schedule C, you'll definitely use Form 4797. The loss will be an ordinary loss (not capital) which is actually better because it's fully deductible against other income without the $3,000 limitation. You'll calculate your adjusted basis (original cost minus accumulated depreciation) and subtract the selling price to determine your loss amount.

Did they actually help with filing or just tell you what forms to use? I'm in a similar situation with some rental property equipment I had to sell.

Sounds like an ad. How much does that service cost? I'm guessing not cheap.

They didn't file for me, but they analyzed all my documentation and gave me very specific instructions on what forms to use and exactly where to enter everything. It was super helpful because I was about to file everything incorrectly on Schedule D. They don't actually prepare your return - it's more about analyzing your specific tax situation and documents to make sure you're doing everything correctly. I don't remember the exact price but it was reasonable considering how much stress it saved me and potential problems it helped me avoid.

How does this even work? Seems sketchy that some service can magically get you through to the IRS faster than doing it yourself.

Yeah right. I've tried everything to get through to the IRS and nothing works. They're permanently understaffed and impossible to reach. I'll believe it when I see it.

It's actually pretty straightforward - they use an automated system that navigates the IRS phone menus and waits on hold for you. When an agent finally picks up, they connect the call to your phone. It's not about cutting the line, it's just that their system stays on hold instead of you having to do it yourself. It's completely legitimate - they don't have special access to the IRS or anything. They're just handling the frustrating part of waiting on hold for hours, which is what most people give up on.

I did take Section 179 on part of it the first year. Does that mean I can't claim the full loss now? Or does it just change how I calculate the numbers?

It changes how you calculate your numbers. When you take Section 179, you're essentially frontloading your depreciation. Your adjusted basis would be lower because you've already received tax benefits through that deduction. For example, if you bought the machine for $50,000 and took a $20,000 Section 179 deduction in year one, then normally depreciated another $10,000 over subsequent years, your adjusted basis would be $20,000. If you sold it for $15,000, your loss would be $5,000. Make sure you have good records of all the deductions you've taken over the years to calculate this correctly.

Not OP but I had a similar situation with equipment I sold. The service contract portion gets allocated separately as ordinary income, not as part of the capital transaction. At least that's how my accountant handled it.

Yeah actually I did have a service contract that transferred to the new owner with about 8 months left on it. I hadn't even thought about that part. I paid $3200 for a 3-year service plan originally.

Location, location, location. I put it in what I thought was a great spot near a lake where people go fishing and boating, but it turns out most people just bring their own ice in coolers. The property lease was expensive, electricity costs were higher than projected, and I had several expensive repairs in the first year. Competition from nearby gas stations with cheaper ice didn't help either. The ROI calculations from the manufacturer were... let's just say optimistic.