Words you may need to know (see Glossary):
- Disposition
- Exchange
- Recapture
- Recovery period
- Section 1245 property
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. You also
increase the basis of the property by the recapture amount. Recovery periods for property are discussed under Which Recovery Period
Applies? in chapter 3.
If you sell, exchange, or otherwise dispose of the property, do not figure the recapture
amount under the rules explained in this discussion. Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544
under Section 1245 Property.
Figuring the recapture amount.
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 is the amount you must
recapture.
Example.
In 1999, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 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 1999 and 2000. In 2001, he used the
property 40% for business and 60% for personal use. He figures his recapture amount as follows.
| Section 179 deduction claimed (1999) |
$5,000.00 |
| Minus: Allowable depreciation
(instead of section 179): |
| 1999 |
$1,666.50 |
| 2000 |
2,222.50 |
| 2001 ($740.50 × 40% (business)) |
296.20 |
4,185.20 |
| 2001 -- Recapture amount |
$ 814.80 |
Paul must include $814.80 in income for 2001.
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