Frequently Asked Tax Questions And Answers
Keyword: Depreciation Recapture
11.1 Sale or Trade of Business, Depreciation, Rentals: Depreciation & Recapture
I expensed equipment and furniture (not used for residential rental
property) two years ago under section 179, but stopped doing business last
year. Does any of this have to be recaptured and claimed as income, even though
the items have not been sold?
If you claim a section 179 deduction for the cost of property in the year
you place the property in service, and in a subsequent year, you do not use
it more than 50 percent for business, you may have to recapture part of the
section 179 deduction. This can occur in any year during the recovery period
for the property even though the items have not been sold. Refer to Publication 946, How to Depreciate Property, on how to calculate the recapture
amount. The recapture amount is computed on part IV of Form 4797 (PDF), Sale of Business Property, and is included as other
income on line 6 of Form 1040, Schedule C (PDF), Profit
or Loss from Business (Sole Proprietorship).
References:
When an individual sells a building, what depreciation is being
recaptured? Is it the amount of depreciation taken in the prior years or the
depreciation left?
Generally, the amount of depreciation you must recapture for residential
rental or nonresidential real property is the excess of the depreciation allowed
or allowable over straight line depreciation for the property. Thus, if you
sell a building placed in service after 1986 which required the use of the
straight-line method, you would not have any depreciation to recapture. However,
if you took the 30% special depreciation allowance for your building, this
allowance may be subject to recapture. For property placed in service in 1986
and earlier, see Publication 946, How to Depreciate Property.
For further information, refer to Publication 544, Sales or Other
Disposition of Assets, and Supplement to Publication 946, How
to Depreciate Property.
References:
How do I recapture depreciation on rental property that has been
sold?
If you dispose of residential rental property placed in service after 1986
(or after July 31, 1986, if the election to use MACRS was made), you would
not have any depreciation to recapture because you used a straight-line method.
If you do have depreciation to recapture resulting from a gain on the sale,
or because you did not meet the condition above, use Form 4797 (PDF), Sale of Business Property, to compute the amount of
depreciation recapture.
References:
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