179 depreciation schedule- 5 tax years or 60 month?

[jrze]

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)?  

[M-MTax]

TT will figure that for you so you don't have to. There's a recapture section somewhere in the biz section.

[DawnC]

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:

1. Discontinue using accelerated MACRS
2. Begin using straight-line depreciation
3. Compute excess depreciation for all prior years
4. 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%.  

[AmeliesUncle]

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.

[jrze]

Thank you.  What is the source to support that the 5 years from date placed in service is 60 months and not 5 tax years?  I am not trying to be difficult, but always like to verify information by reviewing the source.  

[AmeliesUncle]

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@jrze wrote:

Thank you.  What is the source to support that the 5 years from date placed in service is 60 months and not 5 tax years?  I am not trying to be difficult, but always like to verify information by reviewing the source.  

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It is not 60 months.

But as I mentioned above, the rules vary depending on the vehicle.  So in order to give you a proper answer, you need to tell us (1) the weight of the vehicle, (2) the cost of the vehicle, (3) what exactly the vehicle is (car, truck, van, SUV, dump truck, etc.) and what it is used for.

[jrze]

Thank you.  It is a 6500 lb SUV purchased new for approx. $45,000 and it has been used for transporting packages for mailing for an online sales business. 

[Mike9241]

the recapture occurs on the year the business use falls below 50%

[AmeliesUncle]

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@jrze wrote:

Thank you.  It is a 6500 lb SUV purchased new for approx. $45,000 and it has been used for transporting packages for mailing for an online sales business. 

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Okay, over 6000 pounds mean it is not subject to the Luxury Limits.  It sounds like it should have been subject to the $25,000 limit for Section 179 (prorated, based on business/personal use).  And I got the impression the vehicle has also been used for some personal use, which makes it "Listed Property".

As "Listed Property", when the vehicle drops to 50% or less for the tax year, any accelerated depreciation (including 179) is recalculated using Straight-Line depreciation, and the 'excess' is "recaptured".

If the vehicle was always used 100% for business, this is how depreciation would have been calculated using Straight-Line:

2017: 10% of cost

2018: 20% of cost

2019: 20% of cost

2020: 20% of cost

2021: 20% of cost

2022: 10% of cost

So if business percentage drops to 50% or less for tax year 2022, it is recalculated using straight line.  But because 100% of the cost would already be depreciated in 2022, there is nothing to recalculate.

It is bit more complicated due to personal use, but that is the simplified version of it.

[jrze]

It has been used approximately 55% for business use per year for all prior years.  So, if it drops below 50% in 2022, there will not be a recapture?  

[Mark11111]

I am in the exact same situation.  Claimed section 179 on an SUV over 6000lbs placed in service 12/2017.   I have always kept it slightly above the 50% business use and would like to let it drop below.  The questions are:

1.  For 179 deduction considerations, is the 5 years up on 12/2022 or for tax year 2022?  i.e., do I need to show business use was above 50% until December of 2022?  Edit, I now see what AmeliesUncle said which is that 100% would have already been depreciated in 2022 using the straight-line method so the actual month does not matter.

2.  For depreciation considerations after 5 years, can I use the vehicle for pretty much anything I want, but must just list it as a business vehicle forever (or until the value drops below the basis) to avoid a depreciation recapture?

[RobertB4444]

Well, @Mark11111 you figured out the depreciation in the first part.  You are correct that the vehicle is owned by the business and now that it is fully depreciated any money received for it will be considered a gain due to depreciation recapture.