Asset Sale losses in Virginia

[tammie]

New client started a Sch C business in 2024; bought large dollar items and sold some of them for a loss.  The loss is showing on the 4797, but no loss is carrying over to the Virginia Form 760--what am I missing to get this is transfer to Virginia?

[sjrcpa]

Is this a multi state return?

[Terry53029]

Need more details, such as resident, non resident, part year resident, moved to another state ??

[tammie]

This is not a multi-state; client is a full year resident of Virginia.  He is a new client forming a new Schedule C business.  He purchased several large pieces of equipment for the business and sold some of them at a loss.  I entered the assets in the fixed asset screen on Proseries.  And then entered the disposition date and sales amount in each of the sold assets.  Everything looks fine on the federal side, but on the Virgina tax return, I don't see the losses on the sale of the assets like I was expecting.  I think I must be missing something, but I don't know what.  I appreciate any advice.

[rbynaker]

VA starts with Federal AGI and makes adjustments from there.  What are you expecting to see appear on the VA return?

[tammie]

The federal AGI is carrying over to the Virginia return.  But there is a huge Addition in the Virginia return which is a depreciation adjustment--I just can't track this depreciation adjustment back to the federal return which has good deprecation schedule.  How can I prove this Addition--the client is definitely going to ask about it because it is increasing his state tax so much.

[rbynaker]

VA doesn't allow bonus depreciation so that's the add-back.  Is there an overall loss on the Sch C?  If not, you can elect Section 179 on the "kept" assets and avoid the add-back.  I would think for the bought-and-sold assets there would be no depreciation allowed (but there's a debate about whether this applies to real property under the mid-month convention).

Every case is going to be a little different but, in general, accelerating depreciation to create an NOL or 179 carryover may be short-sighted.  For one thing, the carryover will not offset future income for SE tax purposes (whereas slower depreciation WILL offset future SE income).  Also, no point wasting a perfectly good standard deduction (and IMO no point wasting the 10% tax bracket but that may be more situational).

[sjrcpa]

You can also elect out of bonus depreciation and use regular MACRS.

[tammie]

Thank you all for your advice and knowledge.  Been in meetings all day so I will delve into this depreciation situation this evening.