 right now I just want to show something that has depreciation on the books already so when we dispose it it'll have something on there so prior year depreciation I'm just making up the 10,000 so that means if I go back out over I adjusted this first one by the way to eliminate the current and special depreciation so you can see that 50,000 is now basically it's a double declining half-year convention that's what the makers thing is so we might talk more about that later but that's now it's calculating the 10,000 and then for the second piece we've got the 10,000 prior year depreciation and then it's using the makers double decline half-year convention to get to the 4,008 that 14,008 is what's pulling over to the schedule C so that's the general idea again if you purchase equipment you might have to put it on the books and capitalize it you might get all the depreciation still and the first year of purchase if you can qualify for like 179 deduction and special deductions but conceptually it's likely that we can from an accrual standpoint an accounting standpoint we put on the books and allocate the cost over into the future and and the tax code kind of mirrors that and then they deviate from that based on whatever economic weird whatever they're doing at the time so now we have this one on the books now we could say okay what if we sold that piece of equipment so now we're gonna say we disposed of that equipment that has depreciation related to it this is not inventory if it was inventory then we would normally just purchase it mark it up and then sell it and and that would be part of our cost to good sold calculation but instead this is equipment that we used in the business like a forklift or something like that which we're now selling or disposing of also note from a bookkeeping standpoint between the bookkeeper and the tax and taxes the equipment is something that you don't purchase all the time it's not a day-to-day business transaction so what you need to do is give that information that changes from period to period the purchases and the disposals and and sales of equipment which there shouldn't be too many that's what you need to give to your tax professional so they can update the depreciation and amortization schedules you also might be in a situation if you help your clients with bookkeeping and you're like a tax professional or something and you do bookkeeping as well that they might need help with those transactions of course because they can be complex just from a bookkeeping standpoint and then when you take tax depreciation into consideration it becomes further complicated also note that we could have different depreciation schedules for book depreciation and tax depreciation so i could have put like book depreciation in there on a straight line method instead of a instead of a a tax method which could include taxes could include 179 and and special depreciation so that complicates things further and so again you gotta just we might talk more about that when we get into like depreciation itself but let's think about a disposal now we're going to sell the asset now when we sell the asset notice that you would you you might sell it obviously you get to sell it on the market for whatever you can purchase it for and the asset value has gone down in other words what you've done with this asset we're selling let's say this this one right here we bought it for 25 000 it's going to go down in value that's the original cost and basis of it it's going to go down in value but we're getting a benefit from it as we depreciate it so we got a tax benefit of the 10 000 and that decreases the basis we got another tax benefit if we were able to take the 4800 in the current year that decreases the basis as the basis goes down that's bad for taxes because it's more likely that you're going to end up with a gain or less of a loss when you sell it now note that the special depreciation and the 179's allowing you to expense more of it in the current year means that when you sell something it's likely that you're going to end up with a gain because you over depreciated it because the tax code allows you to do that right so now you might end up with a gain kind of situation all right so let's imagine that we sold it for like a gain situation let's say we sold it for for 15 000 we sold it for 15 000 percentage a percentage or amount of basis property code existing mortgage let's say and i'm going to say we sold it like in the middle of the current year of 2022 in this case so so now it's it possibly adjusts the depreciation so now we've got the 25 000 the 10 000 that we depreciated in a prior year it's still depreciated part of it because we had the equipment up until the current year and then it calculated the sale you know at that point in time so then we can go to the to the forms that were generated so here's form 4797 sale of business property so if i scroll down the sale of business property pulling in gain from line 31 if i go to page two then we've got the equipment sale and here's the calculation so we had the 15 000 that's what we received the cost or basis plus expense expense of the sale is 25 000 the depreciation allowed or allowable 12 400 so the adjusted basis then it's the 12 600 so the total gain comes out to that 2400 that they're picking up here let me just see if i can kind of mirror that in like an excel worksheet let's just pull up another excel worksheet and just see if i can reconstruct that because sometimes it makes more sense if we build it ourselves so i'm just going to say let's format this currency and i'm going to say we'll get rid of the dollar signs boom and so when we bought this thing we bought it at a cost of 25 000 and then there was depreciation so we had the depreciation for you let's say D pre for year one and then year two and we sold it in year two and so the depreciation for year one or the prior year depreciation let's say prior prior year depreciation was 10 000 and the current depreciation we could see here was 2400 so we'll say okay it's 2400 so the total depreciation total D pre was equal to the sum of those two of 12 400 so we already got a benefit from that