In the year that business use drops below 50%, you will include the recapture amount as ordinary income. 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 in (2) is the amount you must recapture.
Basically, you refigure what the depreciation should have been without section 179, subtract it from the 179 amount that was deducted, and include the difference in to income.
Here is an example from IRS publication 946:
Example 1. Shirley Butler, a calendar year taxpayer, bought and placed in service on February 12, 1998, an item of 3-year property costing $5,000. She elected to expense the property under section 179. Since she deducted the full cost of the property, she did not claim any depreciation for it. She used the property only for business in 1998 and 1999.
In 2000, Shirley used the property only for personal use. Because of the change from business to personal use, she must recapture the benefit she got from the section 179 deduction claimed in 1998. Shirley figures her recapture amount as follows.
|Section 179 deduction claimed (1998) ||$5,000.00 |
|Allowable depreciation (instead of section 179): |
|1998 -- $5,000 x 33.33%* ||$1,666.50 |
|1999 -- $5,000 x 44.45%* || 2,222.50 || 3,889.00 |
|2000 -- Recapture amount ||$1,111.00|