Section 179 recapture occurs when you are required to add back to
income the section 179 deduction you took in an earlier year.
When To Recapture the Deduction
You may have to recapture the section 179 deduction if, in any year
during the property's recovery period, the percentage of business use
drops to 50% or less. In the year the business use drops to 50% or
less, you include the recapture amount as ordinary income in Part IV
of Form 4797. Recovery periods for property are discussed under
Property Classes and Recovery Periods in chapter 3.
Dispositions.
If you sell, exchange, or otherwise dispose of section 179
property, you may have to treat all or part of the gain as ordinary
income. For more information, see Section 1245 Property in
chapter 3 of Publication 544.
Installment sales.
If you sell property under the installment method for which you
claimed a section 179 deduction, report any recapture income in the
year of sale, even if you did not receive an installment payment that
year. For information on installment sales, see Publication 537.
How To Figure the Recapture
You treat the section 179 deduction as depreciation for purposes of
the recapture rules. To figure the amount to recapture, take the
following steps.
- Figure the depreciation that would have been allowable on
the section 179 deduction you claimed. Begin with the year you placed
the property in service and include the year of recapture.
- Subtract the depreciation figured in (1) from the section
179 deduction you claimed.
- The result in (2) is the amount you must recapture.
The section 179 deduction claimed is the part of the cost you
deducted in the year you placed the property in service.
Example 1.
Shirley Butler, a calendar year taxpayer, bought and placed in
service on February 12, 1998, an item of 3-year property costing
$5,000. She elected to expense the property under section 179. Since
she deducted the full cost of the property, she did not claim any
depreciation for it. She used the property only for business in 1998
and 1999.
In 2000, Shirley used the property only for personal use. Because
of the change from business to personal use, she must recapture the
benefit she got from the section 179 deduction claimed in 1998.
Shirley figures her recapture amount as follows.
| Section 179 deduction claimed (1998) |
$5,000.00 |
| Allowable depreciation (instead of section 179):
|
| 1998 -- $5,000 x 33.33%* |
$1,666.50 |
| 1999 -- $5,000 x 44.45%* |
2,222.50 |
3,889.00 |
| 2000 -- Recapture amount |
$1,111.00 |
| *Rates from Table A-1 (3-Year
Property) |
She must include $1,111 in income in 2000. She did not take into
account depreciation for 2000 because she did not use the property for
business or investment purposes in that year.
Example 2.
Paul Lamb, a calendar year taxpayer, bought and placed in service
on August 1, 1998, an item of 3-year property costing $10,000. The
property is not listed property. He elected a $5,000 section 179
deduction for the property. He used the property only for business in
1998 and 1999. In 2000, he used the property 40% for business and 60%
for personal use. He figures his recapture amount as follows.
| Section 179 deduction claimed (1998) |
$5,000.00 |
| Allowable depreciation (instead of section 179):
|
| 1998 -- $5,000 x 33.33% |
$1,666.50 |
| 1999 -- $5,000 x 44.45% |
2,222.50 |
| 2000 -- $5,000 x 14.81% x 40%
(business) |
296.20 |
4,185.20 |
| 2000 -- Recapture amount |
$ 814.80 |
| *Rates from Table A-1 (3-Year Property)
|
Paul must include $814.80 in income for 2000.
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