What is excess depreciation recapture?
Excess depreciation recapture is when a listed asset has its business use drop to 50% or below (including assets you gave away or converted to personal use). When that happens, you are required to switch to using the straight-line depreciation method and recompute all prior depreciation as if you'd used straight-line depreciation (including bonus and Section 179 amounts). If you took more depreciation in prior years than straight-line depreciation would allow then you'll need to recapture that amount.
Example:
Last year you bought a business asset for $20,000 and used it 100% for business. You took a Section 179 deduction of $10,000 and a bonus depreciation deduction of $5,000. You also took normal depreciation of $1,000.
Total prior year depreciation taken: 10,000 + 5,000 + 1,000 = $16,000
This year your asset dropped to 40% business use. You calculate the amount of depreciation that would have been allowed using the straight-line method (assuming 5 year asset, half-year MACRS convention): 20,000 * (1/5) * .5 = $2,000
Amount to enter as prior depreciation: $2,000
Amount to recapture as excess depreciation: 16,000 - 2,000 = $14,000
Example:
Last year you bought a business asset for $20,000 and used it 100% for business. You took a Section 179 deduction of $10,000 and a bonus depreciation deduction of $5,000. You also took normal depreciation of $1,000.
Total prior year depreciation taken: 10,000 + 5,000 + 1,000 = $16,000
This year your asset dropped to 40% business use. You calculate the amount of depreciation that would have been allowed using the straight-line method (assuming 5 year asset, half-year MACRS convention): 20,000 * (1/5) * .5 = $2,000
Amount to enter as prior depreciation: $2,000
Amount to recapture as excess depreciation: 16,000 - 2,000 = $14,000
