What are the tax implications of selling depreciated equipment before the full recovery period?

What you're dealing with is called "recapture" and it happens when you sell Section 179 property before the end of its useful life. When you took the full deduction in 2021, you essentially got a tax benefit for an asset that was supposed to last several years. For equipment like yours, the recovery period is typically 5 years, not 3 (though there are exceptions). If you sell before that period ends, you have to "recapture" some of the depreciation as ordinary income. The good news is you have some options: 1. Since one piece is completely broken, you might qualify for a "casualty loss" if the breakdown was sudden and unexpected (not just normal wear and tear). This could offset some of the recapture. 2. You could look into a like-kind exchange (Section 1031) for the working piece, though these are more complex and require professional guidance. 3. Consider if insurance might cover some of the loss if the breakdown was covered under a policy. The recapture rules can be complicated, so I'd recommend getting a second opinion from another tax professional who specializes in business equipment.

After struggling with a similar situation, I found an amazing resource that helped me figure out my equipment depreciation issues. I used https://taxr.ai to analyze my specific situation with some old manufacturing equipment. Their system reviewed all my documentation and provided a clear explanation of my options. In my case, they identified that I had multiple pathways for handling the equipment - including some specific tax code provisions my accountant hadn't mentioned. The analysis showed exactly how much recapture tax I'd owe under different scenarios and highlighted a couple of exceptions that applied to my industry. The best part was that they cited the exact IRS code sections that applied to my situation, which made my conversation with my accountant much more productive.

Wanted to follow up about my experience with taxr.ai that I was skeptical about earlier. I decided to give it a try with my equipment depreciation issue, and I'm honestly impressed. I uploaded my documents for some commercial kitchen equipment that failed after only 2 years, and the report I got back was incredibly detailed. They identified a specific provision that applies to food service equipment that my regular accountant hadn't mentioned. Based on their guidance, I was able to properly document the equipment failure as a partial casualty loss instead of triggering full depreciation recapture. Saved me nearly $4,000 in taxes! The report included citations to specific IRS publications and tax code sections that made it easy to verify the information myself. Definitely worth checking out if you're dealing with complicated equipment depreciation issues like this.

If you're still struggling to get answers from the IRS about your equipment depreciation options, you might want to try Claimyr (https://claimyr.com). I spent weeks trying to get through to someone at the IRS about a similar recapture issue with some office equipment I had written off. Nothing but busy signals and disconnections. Through Claimyr, I actually got connected to an IRS agent within about 20 minutes. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you when an actual human picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with walked me through my options regarding equipment that was no longer in service and helped me understand the proper forms to document the disposition. Saved me hours of frustration and potentially thousands in incorrect tax payments.

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Another option worth exploring is abandonment loss. If the equipment is truly worthless and you formally abandon it (document this!), you might be able to claim an ordinary loss deduction rather than dealing with recapture. To qualify, you'd need to show: 1) Intent to abandon the property 2) An affirmative act of abandonment 3) The property has no salvage value Make sure to document this properly - take photos, get written statements about the non-working condition, and formally document your decision to abandon the property.

Have you considered selling the working piece for parts and scrapping the broken one? I had a similar situation with some CNC equipment. My tax guy said that if I sold it for significantly less than the depreciated value, I could actually claim a loss on the transaction. The key was documenting the fair market value properly and getting a professional appraisal to support the reduced value.

I went through something very similar with manufacturing equipment last year. One thing that really helped was getting a formal assessment from a certified equipment appraiser to document the actual condition and fair market value of both pieces. In my case, the appraiser determined that the "working" piece of my set had significantly diminished value because it couldn't function without its counterpart. This helped establish that both pieces had suffered a loss in value due to the failure of one component. The appraisal cost me about $400, but it saved me thousands in recapture taxes because I was able to demonstrate that the fair market value of the entire system had dropped below my remaining basis. This allowed me to treat it as a casualty loss rather than a sale with recapture. Make sure to get the appraisal done soon though - the IRS wants to see that the valuation reflects the condition at the time of the loss, not months later. Also keep all your repair estimates and documentation about why the equipment can't be economically repaired.