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taxmap/pubs/p946-013.htm#TXMP78e95b36 When Must You Recapture the Deduction?

Depreciation, Recapture

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 4.

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.

If the property is listed property (described in chapter 5), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement.

taxmap/pubs/p946-013.htm#TXMP6bdbebc3 Figuring the recapture amount.

To figure the amount to recapture, 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. The result is the amount you must recapture.

taxmap/pubs/p946-013.htm#TXMP3485a5f2
Example.

In January 2004, 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 and also elected not to claim a special depreciation allowance. He used the property only for business in 2004 and 2005. In 2006, he used the property 40% for business and 60% for personal use. He figures his recapture amount as follows.

Section 179 deduction claimed (2004)		$5,000.00
Minus: Allowable depreciation mm(instead of section 179 deduction):
2004	$1,666.50
2005	2,222.50
2006 ($740.50 × 40% (business))	296.20	4,185.20
2006 — Recapture amount		$ 814.80

Paul must include $814.80 in income for 2006.

If any qualified zone property or qualified renewal property placed in service during the year ceases to be used in an empowerment zone or renewal community by an enterprise zone business or a renewal community business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. Similar rules apply to qualified Liberty Zone property and qualified section 179 GO Zone property.

Previous Page:  Publication 946 - How to Depreciate Property - How Do You Elect the Deduction? Next Page:  Publication 946 - How to Depreciate Property - Claiming the Special Depreciation Allowance Use     to find additional instances of index items.