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.

Business Tools

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.

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.

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.

Section 179 expensing election $3,000 x .75 =   $2,250
Allowable depreciation      
1999: $3,000 x .75 x .10 = $225  
2000: $3,000 x .75 x .20 = $450  
2001: $3,000 x .10 x .20 = $60
$ 735
2001 recapture amount:     $1,515