Depreciations with a NOL
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Depreciations with a NOL

I am wondering which method of depreciation is the most beneficial if I have an NOL. Ex. I purchased a computer in 2019 and used it 100% for business. But, I closed the business in January 2020 (so I don't want to use a 179 and then have to recapture if I understand correctly). But, since I could benefit from the depreciation deduction in 2020 more, what do I do in 2019? Does it look like I can depreciate over the years or chose the 100% special depreciation allowance?!? I am assuming I should choose to depreciate over the years, but what happens if I stop using the item the next year?

2 Replies
Employee Tax Expert

Depreciations with a NOL

If you depreciate an asset over its useful life, you do not have to recapture any depreciation. If you sell it, the basis is the depreciated amount. If you convert it to personal use, you don't have to do anything.


Either Section 179 or Special Depreciation must both be recaptured.



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Level 15

Depreciations with a NOL

If you depreciate an asset over its useful life, you do not have to recapture any depreciation.

That is a misleading statement. When you sell or otherwise dispose of an asset, you are required by law to recapture all depreciation taken and pay taxes on it in the year of sale. Even if the asset is completely destroyed, then that depreciation still has to be accounted for. (usually in casualty and thefts, so you don't have to recapture it.)

In the case of converting the asset to personal use (on a SCH C business) that's not a disposition. So depreciation is just suspended until the tax year you "do" sell or otherwise dispose of the asset.

Overall though, a computer qualifies under the Safe Harbor di-minimus act to just be expensed in the year of purchase, if the cost was less than $2,500. That's the way I go so that I don't have to deal with the petty nuisance of depreciating a $1,500 over 5 years, when that $300 of depreciation each year "MIGHT" make a $1 difference to my tax liability each year - but only if I'm lucky.


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