I have been operating a quilting business (single member LLC) for several years. My quilting machine has been deducted as a section 179 expense, offsetting business income. I closed my business at the end of last year, but continue to use the machine for personal projects. Turbotax is claiming all of the remaining depreciation as a business expense in 2023, which results in a large business loss deduction. Is this correct?
To clarify, when did you start using the quilting machine and when did you claim the 179 deduction? Was the quilting machine used since you started the business and did you take the deduction then or just claimed it this year?
I started using the machine in 2018 when I started the business. I have been taking the 179 deduction each year, limited by net income from the business, so there has been a carryover each year.
It depends on the useful life of the asset. You must indicate your asset was converted to personal use in the asset itself under your self employment activity, then TurboTax knows the recapture procedure. If you have already exhausted the recovery period that was set up, then you will not have any recapture until you sell your quilting machine.
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.