U.S. Taxes: Can you deduct or depreciate equipment that was both bought and sold in the same year?

Question

Assume there is equipment used for a for profit endeavor that will be deducted from earnings. That equipment is also sold in the same year, for less than or equal to the purchase price. How does this affect the deduction, and/or depreciating of assets for federal tax purposes? Citations welcome.

Answer 1

You may neither depreciate nor deduct losses for "Section 1231 property" e.g a machinery equipment that was on the books for less than one year. If you had held this piece of property for more than one year, you could have deducted the difference between the depreciated value of the property and the sale price as an ordinary loss (See IRS Pub 544)

The sale is not a section 1231 sale, since you didn't hold the equipment for more than a year. It is a regular sale, reportable on form 4797, Hence, you can deduct the loss as short term loss.