What is Section 179 recapture?
Section 179 recapture happens when an 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 recompute your prior depreciation as if you didn't claim Section 179 expense. To do so, you need to take the amount of Section 179 expense and calculate the amount of depreciation that would have been allowed on that amount if you hadn't taken the Section 179 expense. The difference between the Section 179 expense and the amount of regular depreciation that you would've claimed on the Section 179 amount needs to be recaptured.
Example:
Two years ago, you bought a business asset for $12,000. You took a Section 179 deduction of $5,000. You used your asset 100% for business in prior years. However, this year your asset dropped to 40% business use. This year you'll need to recapture your Section 179 expense.
Assuming you used double declining accelerated depreciation and your asset was a 5 year asset using the half-year MACRS convention, you'll need to figure the amount that you could have taken each year on your $5,000 of Section 179 expense if it had been depreciated normally.
Depreciation that would have been taken in the year placed in service: 5,000 * (2/5) * .5 = $1,000
Depreciation that would have been taken last year: (5,000 - 1,000) * (2/5) = $1,600
Total depreciation that could have been taken on the Section 179 amount: $1,000 + $1,600 = $2,600.
Amount to add to existing prior depreciation: $2,600
Amount to recapture: $5,000 - $2,600 = $2,400
Example:
Two years ago, you bought a business asset for $12,000. You took a Section 179 deduction of $5,000. You used your asset 100% for business in prior years. However, this year your asset dropped to 40% business use. This year you'll need to recapture your Section 179 expense.
Assuming you used double declining accelerated depreciation and your asset was a 5 year asset using the half-year MACRS convention, you'll need to figure the amount that you could have taken each year on your $5,000 of Section 179 expense if it had been depreciated normally.
Depreciation that would have been taken in the year placed in service: 5,000 * (2/5) * .5 = $1,000
Depreciation that would have been taken last year: (5,000 - 1,000) * (2/5) = $1,600
Total depreciation that could have been taken on the Section 179 amount: $1,000 + $1,600 = $2,600.
Amount to add to existing prior depreciation: $2,600
Amount to recapture: $5,000 - $2,600 = $2,400
