Section 179 Recapture

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 in the following situations.

Business use drops. You may have to recapture the deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Recovery periods are discussed later.

Dispositions of property. 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 Depreciation Recapture in chapter 11.

How To Figure the Recapture

You treat the section 179 deduction as depreciation for purposes of recapture.

To figure the amount to recapture (include in income) take the following steps.

1. 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.
2. Subtract the depreciation figured in (1) from the section 179 deduction you claimed.
3. The result in (2) is the amount you must recapture.

Example. 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. During 2000, he used the property 40% for business and 60% for personal use. He figures his recapture amount as follows.

Paul must include $1,375 in income for 2000.

Where To Report Recapture

Report any recapture of the section 179 deduction as ordinary income in Part IV of Form 4797 and Schedule F (Form 1040).

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