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Good afternoon, John.  I have a question regarding my small business.

We had a flood which destroyed a lot of our inventory (we're a technology/phone system company - so most of our inventory is electronic and doesn't like to go for a swim).

A majority of that equipment was made up of trade-ins, buy-backs, etc. during the course of a new sale/install.  In other words, in most cases, the trade-in resulted in a huge discount on the bill for new services for a customer.

To me, these trade-ins and that equipment falls under "bartering", as our clients were essentially trading in their equipment for lower costs on new/replacement hardware.  There are clear definitions regarding bartering and the Fair-Market-Value taxation of such equipment, so I understand that we pay tax on the FMV of the equipment.  However, there's nothing I can find indicating that you can use the same FMV calculation for losses of that equipment, which seems incredibly one-sided (and not in our favor of course). :)

I can't imagine that they can tax you for receiving it, and then not let you deduct it when you have a loss on it.

Thoughts?  I haven't been able to find anything regarding a situation remotely like this.

Thx.

Answer
Kris,

Thanks for your question.

Assuming the equipment is now useless, you can deduct your basis in the equipment.  That would be trade in allowance that you gave the buyer - assuming that you booked the sale at full price.  

In other words, assume the full price is $1000. You gave a trade-in allowance of $200 and he gave you $800 cash.  If you recorded the sale at $1,000, your basis in the used equipment is $200 and that is the amount you can take as a casualty loss.  If you booked the sale at $800 you have no basis in the used equipment, and no casualty loss.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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