Recapturing
the Expensed Amount
Remember that to claim the expensing election for a piece of
property, you must use the property at least half the time for
business purposes. If your business usage drops below 50 percent
during some year before the ordinary depreciation
period for this property ends, you will have to "give
back" or recapture some of the amount you expensed.
To figure the recaptured amount, compare the amount you
expensed, and the total amount you would have been entitled to
deduct so far under the quickest depreciation
method allowed for that type of property. If the amount you
expensed was greater, the difference between the two amounts
must be reported as ordinary income.
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Among the Business Tools are Form
1040 and Form
4797. They are in Adobe Acrobat .pdf format,
and you will need Acrobat Reader 4.0 to view the
files and print them. A free version of Acrobat
4.0 is available in the Business Tools area as
well.
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The recapture is reported on IRS Form 4797, Sales of
Business Property, in Part IV at the end of the second page.
If the property was listed property, used Column B of Lines 33
through 35. If not, use Column A.
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In 1999, John Able purchased a new computer
to use in his startup boat chartering business,
and expensed 75 percent of the $3,000 cost in
the year of purchase. He used the computer 75
percent for business in 1999 and 2000. In July
of 2001, John decided to buy a new business
computer and retired the old one to his family
room, to be used for business purposes only 10
percent of the time. Since John's computer was listed
property his allowable depreciation must be
computed using the straight-line method, over a
five-year recovery period. John's recapture
amount would be computed as shown in the chart
that follows. John would report the amounts in
bold in Column b, Lines 33-35, of his IRS Form
4797, Sales of Business Property.
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Section 179 expensing election |
$3,000 x .75 = |
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$2,250 |
Allowable depreciation |
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1999: |
$3,000 x .75 x .10 = |
$225 |
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2000: |
$3,000 x .75 x .20 = |
$450 |
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2001: |
$3,000 x .10 x .20 = |
$60
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$ 735
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2001 recapture amount: |
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$1,515 |
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