Sec 179 is limited to business income, which includes Sec 1245 dep recapture for active business property. How do I include income from business SUV sale on form 4562?

[Coleen3]

The income from the gain on Form 4797, Sale of Business Property, does not get added back to Form 4562. It will be added back to your Schedule C as other income. See the excerpt from Form 4797 instructions.

Line 35 

Subtract line 34 from line 33 and enter the recapture amount as “other income” on the same form or schedule on which you took the deduction. For example, if you took the deduction on Schedule C (Form 1040), report the recapture amount as other income on Schedule C (Form 1040). Note. If you filed Schedule C or F (Form 1040) and the property was used in both your trade or business and for the production of income, the portion of the recapture amount attributable to your trade or business is subject to self-employment tax. Allocate the amount on line 35 to the appropriate schedules.

 Be sure to increase your basis in the property by the recapture amount.

[marikomay]

Thanks for your response. When I report the sale of my business SUV, TurboTax adds it to Part III of form 4797 (not Part IV, Line 35 as you suggest). TurboTax reports it as "Other gains or (losses)" on line 14 of 1040, not as "Other income" on Schedule C (Form 1040). It is not, then, reflected in the "Business income limitation" on line 11 of form 4562. Should I alter how TurboTax is handling form 4797? If so, am I able to efile if I make manual changes to the form?

[Coleen3]

NO, the way it is entering the information is fine. Part III of the form has you bring the amount to page 1 of  4797 and then combine with other amounts and then:

"Enter here and on Form 1040, line 14 1040"

It still will not go to Form 4562. See the link for the actual form below.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f4797.pdf">https://www.irs.gov/pub/irs-pdf/f4797.pdf</a>

[marikomay]

Thanks. But the income is then not included in the "Business income limitation" for purposes of section 179 on a new SUV purchase? I thought the gain on 1245 property used in active business should be included when calculating income limits.

[Coleen3]

There are two situations when you have to recapture Section 179 depreciation. 1) Sale: It is figured on Part III and goes to 1040 Line 14. 2) Listed property usage drops below 50% and is no longer categorized as business property. This would be Part IV and go back to Schedule C which would then increase your limitation on Line 11. In the event of a sale, it is not added to your Schedule C because you are not considered to be in the business of selling cars.

[marikomay]

I see. Thanks for the clarification.