Purchased a vehicle in Dec 2017 and claimed 179 depreciation on 2017 taxes. Business use has always exceeded 50%. The business has suffered due to Covid and business use will likely not stay above 50% for much longer. Does the recapture period end at the end of 2021 (5 tax years- 2017-2021) or not until December of 2022-60 months)?
The period starts on the original date the vehicle was placed in service. If an asset with a 5 year recovery period was placed in service on August 9, 2017, the recovery period would end August 9, 2022. If actual expenses are claimed on a business vehicle, the Section 179 deduction, MACRS, and the special depreciation allowance must be recaptured if, during the recovery period, the business use of the vehicle drops to 50% or less. The recaptured amount is the excess of Section 179, MACRS, and the special depreciation allowance claimed versus what would have been allowed had MACRS straight-line depreciation been claimed for every year.
If business use drops to 50% or less, you must:
- Discontinue using accelerated MACRS
- Begin using straight-line depreciation
- Compute excess depreciation for all prior years
- Recapture excess depreciation by reporting it as ordinary income
TurboTax will walk you through these steps when you indicate that the business usage has dropped below 50%.
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Hypothetically, you would not need to worry about recapturing Section 179 as of January 1st, 2022 (the 6th year of tax returns).
However, vehicles have special rules, depending on the type of vehicle, what the vehicle is used for, and the weight of the vehicle. Depending on the details, that COULD extend the time period for longer.