Section 179 business use percentage bug?

[blueridge9999]

Hello,

Am running into an issue with TurboTax. In late 2019 I purchased a heavy SUV for business use. I took the full 100% dedication for tax year 2019. I've maintained a 65% business use of the vehicle in 2019, in 2020, and in 2021 until the vehicle was sold on February 25th, 2021. In determining my business use for 2021, it looks like TurboTax is calculating it at 65% times 2 months, making it 10.83% which triggers the full recapture of the entire special depreciation since the program believes my business use fell below 50% in 2021. This doesn't seem right. My understanding is that a sale event is not supposed to trigger a full section 179 recapture like this. Is it correct that a sale early in the year ends up averaging your % business use over the entirety of the year? Thanks in advance for any feedback on this.

Best,

James

[Rick19744]

Why wouldn't a sale event trigger depreciation recapture?

This occurs with every sale.

Additionally, you took an ordinary expense for the depreciation, now you need to pick up the depreciation recapture up to the extent of any gain on the sale.

Otherwise you would be converting ordinary income into capital gain.

[Mike9241]

this is quite common when 179 is used. to avoid 179 recapture you must hold the asset the full depreciable term which for a 5 year asset would take six years since only a part of a full year's depreciation (ignoring 179)  is normally allowed in the first year. so it might be 1/2 years regular depreciation is allowed in year 1 full year's in years 2 through 5 and the remainder in year 6.

 dispose of the asset before then and the law says business use drops below 50% which then results in full recapture of the 179 depreciation taken but you are allowed the depreciation that would have been allowed if 179 had never been taken

that's why I recommend bonus depreciation. these rules do not apply when bonus depreciation is used.   stupid tax laws.

[blueridge9999]

Let me add a little bit of detail then. My mileage split between business and personal comes up to 65%. If I enter into TurboTax that my sale date was end of February of 2021, then it calculates my % business use as 65% x (2months/12months) = 10.8% and the entire 100% depreciation that was taken the first year goes away since it believes my business use has dropped below 50% in a single year. If, however I enter into TurboTax that my sale date was beginning November of 2021, it calculates my % business use at 65% x (10 months/12 months) = 54.2%. So it seems like the calculation in Turbotax is: (i) determining fraction of miles to total miles, and then (ii) multiplying that resulting amount by the number of months the vehicle was used during the year divided by 12 months. This is resulting in a differential business use depending upon when the vehicle was disposed of during the year. I can't find any publication anywhere that states this is a valid way of calculating business use in the context of a business asset sale. Does anyone have a reference on this?

[ColeenD3]

You are confusing two areas of recapture regarding section 179. One deals with taking the full amount of depreciation upfront and then selling it before the useful life is over. This is your situation.

The second Section 179 recaptures deals with the usage of listed property falling below 50%. This has nothing to do with you.