Section 179 recapture
From Wikicpa
Recapture of Section 179 is triggered when the business use of property placed in service in an earlier year falls to 50% or less during the recapture period. The recapture period is the entire recovery period of the qualifying Section 179 property. Recaptured Section 179 deductions are reported on Form 4797. The recapture amount equals the Section 179 expense deduction less the MACRS depreciation amount that would have been allowed on the Section 179 deduction from the time the property was placed in service, up to and including the year of recapture.
Depreciation recapture of listed property
If a Section 179 deduction was claimed on an item of listed property and the business use of that property later falls to 50% or less, the ยง179 deduction must be recaptured along with any excess depreciation. Recapture rules require the taxpayer to report as income the difference between:
1. The depreciation and Section 179 deductions that were claimed, and
2. The depreciation that would have been allowed using the alternative MACRS depreciation rules for years prior to the current year.
- The following items are considered listed property subject to recapture provisions
- Passenger automobiles
- Other property used for transportation
- Property of a type generally used for entertainment, recreation, or amusement, including photographic, phonographic, communication, and video recording equipment
- Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment (an office in the home qualifies as a regular business establishment if and only if that portion of the home is used both regularly and exclusively for business)
- Cellular telephones, or similar telecommunication equipment, placed in service or leased in a tax year beginning after 1989.
Recapture for property other than listed property
If the business use of property other than listed property falls to 50% or less, taxpayers must report as ordinary income the difference between the Section 179 expense claimed and the depreciation that would have been allowed if the asset had not been expensed under Section 179.
- The following steps are taken to calculate the recapture amount
1. Calculate depreciation that would have been allowed on the amount of the Section 179 deduction, beginning with the year the property was placed in service and ending with the year of recapture.
2. Subtract the depreciation figured in step (1) from the amount of the Section 179 deduction claimed.
