Depreciation & Recapture
This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
I expensed equipment and furniture (not used for residential rental property) two years ago under section 179, but stopped doing business last year. Does any of this have to be recaptured and claimed as income, even though the items have not been sold?
If you claim a section 179 deduction for the cost of property in the year you place the property in service, and in a subsequent year, you do not use it more than 50 percent for business, you may have to recapture part of the section 179 deduction. This can occur in any year during the recovery period for the property even though the items have not been sold. Refer to Publication 946 (PDF), How to Depreciate Property, on how to calculate the recapture amount. The recapture amount is computed on part IV of Form 4797 (PDF), Sale of Business Property, and is included as other income on line 6 of Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship).
References: When an individual sells a building, what depreciation is being recaptured? Is it the amount of depreciation taken in the prior years or the depreciation left?
Generally, the amount of depreciation you must recapture for residential rental or nonresidential real property is the excess of the depreciation allowed or allowable over straight line depreciation for the property. Thus, if you sell a building placed in service after 1986 which required the use of the straight-line method, you would not have any depreciation to recapture. However, if you took the 30% special depreciation allowance for your building, this allowance may be subject to recapture. For property placed in 1986 and earlier, see Publication 946 (PDF), How to Depreciate Property. For further information, refer to Publication 544 (PDF), Sales or Other Disposition of Assets, and Supplement to Publication 946 (PDF), How to Depreciate Property.
References: How do I recapture depreciation on rental property that has been sold?
If you dispose of residential rental property placed in service after 1986 (or after July 31, 1986, if the election to use MACRS was made), you would not have any depreciation to recapture because you used a straight-line method. If you do have depreciation to recapture resulting from a gain on the sale, or because you did not meet the condition above, use Form 4797 (PDF), Sale of Business Property, to compute the amount of depreciation recapture.
References:
Tax Topics & FAQs | 2002 Tax Year Archives | Tax Help Archives | Home
|
