Trying to figure out depreciation recapture when converting a car to personal use

[kashifned]

I bought a car in 2018 for personal use.
In 2023, I used it heavily for work and took the Section 179 bonus on it as well. Total depreciation for 2023 was $13xxx. The FMV of the car when I started using it for work was $27000.

In 2024, I stopped using the vehicle for work (maintenance issues in Jan). Now, if I mark it as 'converted to personal use', I am assuming I have to recapture the depreciation.

Can someone please elaborate how I do that?

The current FMV of the car is somewhere around $17000.

[Vanessa A · Accepted solution]

When you say work, I am assuming this is as a self-employed individual?

No.  You do not recapture depreciation when you convert it to personal use.  You will do this when you actually dispose of the vehicle. 

[kashifned]

Thanks.

Let's say I sell the vehicle in 2025 (I did in March) for $18500. How would i calculate the recapture for next year's taxes.

[KrisD15]

It can be a bit complicated if the vehicle was used only partially for business.

Basically you take the basis and subtract the depreciation (including Section 179) to get an adjusted basis. 

Then the sales proceeds over the adjusted basis is depreciation recapture up to the original cost, then if there is excess over that, it would be capital gain. 

So if the original basis was 27,000 and you only used it in 2023 and took 13,000 depreciation, the adjusted basis is 14,000.

If you sold it for 18,500, you would have 4,500 depreciation recapture. 

[kashifned]

Does this screen capture from my 2023 Form 4562 aligns with what i wrote up there? What is 4405?

[MarilynG1]

The $4405 from your screenshot is what the basis would be for regular depreciation starting in 2024, considering the FMV of 27K, subtracting the 13K  for 179, and 68% business use. 

If you continued at 68% business use, you'd take 68% of the sale price as related to business (18500 x .68 = 12580). 

Since you claimed 13K in 2023, your remaining cost basis for 2024  is 14K x .68 = 9520.  Did you get a depreciation deduction of $4405 on your 2024 return or a deduction for Standard Mileage? The Standard Mileage deduction includes about .25/mi. for depreciation.  If you received a vehicle deduction, subtract that amount from $9520 so see your basis at the end of 2024.

Subtract that amount from the business sales price of 12580 (this could vary if your business % changed in 2024) for the gain on the sale.

If you start using another vehicle for business, it's normally depreciated over five years.  If you don't expect to use it for that time, you probably don't want to elect the 179 bonus depreciation the first year, though the big deduction can be tempting. 

Here's more info on Using a Vehicle for Business and Depreciation Recapture.

@kashifned 

[AmeliesUncle]

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@kashifned wrote:

took the Section 179 bonus on it as well. Total depreciation for 2023 was $13xxx. The FMV of the car when I started using it for work was $27000.

In 2024, I stopped using the vehicle for work

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Yes, there is recapture in 2024.  Because you took accelerated depreciation of Listed Property (your picture shows you took Bonus Depreciation, not Section 179, although the same recapture rule applies to Section 179), there is recapture because the business percentage dropped to 50% or less.

The other comments are referring to different kind of recapture that MIGHT apply when it is sold.  But in your case, you need to deal with recapture of the accelerated depreciation on your 2024 tax return.

In answer to your question, I THINK it is reported in the "Sale of Business Property" section (even though it was not sold yet).  I think one of the first questions asks about Section 179 or Listed Property.  But maybe someone else can give you more detailed information about that.

[Edited to clarify you took Bonus Depreciation, not Section 179].