Computer Deduction and Usage Question

[Arch Stanton]

I purchased a computer on 11/26/2021 with a credit card, starting using it in my business on 12/01/2021, and paid for it on 1/11/2022.

Being that it was purchased and used in 2021, but not paid for until 2022, can I claim it as an expense in 2021?

Also, I purchased another computer in 2019, which I think I claimed as an expense on my 2019 taxes. I'm pretty sure I took the single year deduction instead of depreciating it over time. I have a copy of my tax return, but can't seem to find this information. Where is it located?

The computer purchased in 2019 would have been listed as 50/50 business and personal use. Now that I have two computers, I will be using the one from 2019 mostly for personal use and the one from 2021 mostly for business use.

Is there anything I need to do regarding the 2019 computer now that the usage has changed? And if I end up selling it and then the usage on the 2021 computer changes to 50/50 business and personal, then I would need to note that on my 2022 taxes?

[KrisD15]

Yes.

Charging on a credit card is the same as paying cash. That is the date you purchased it.

You purchased the computer in 2021. 

No, it is not an "Expense" because it is a tangible THING.  You may be able to take the 179 Deduction which results in the same as expensing.  The entire amount is deducted from your business income. 

Look for Form 4562 from your 2019 Tax Year Return for 179 deduction, Bonus Depreciation and Straight line depreciation on assets. 

When the computer changes from business to personal use only, you need to be aware of the depreciation you took on it. 

IF you were to sell it, you might need to repay that depreciation back as "Depreciation Recapture" and it is taxed at your regular income rate. If it becomes useless, it is at the end of it's life. 

Again, changing from all business to 50/50 would not require any reporting if you fully depreciated it the year it was placed in service. Again, if you were to sell it, you would need to recapture the depreciation. 

Also be aware that you cannot use the 179 Deduction for more than your income for that year. 

If you do, it is lost. 

For example, say your only income is Self-Employment and that income is 10,000.

If you try to do a 179 for 15,000 worth of assets, you'll get 10,000 against your income and the remaining 5,000 is lost. It will not carry over. 

TurboTax Tip

[Arch Stanton]

I searched the tax return and couldn't find anything. I guess I didn't claim it. The only thing I found was a "De Minimis Safe Harbor Election" section. I don't know if that means anything.

Being that it appears I didn't claim it in 2019, can I claim it now retroactively for the years that I used it for my business from 2019-2021?

Also, for the computer I purchased in 2021, I received a partial refund of $100 in 2022. Do I just deduct that from the total cost in 2021 even though I received the refund in 2022?

[DawnC]

You could have expensed the 2019 if you used the De Minimis Safe Harbor Election.   That election allows you deduct the full cost of items worth $2,500 or less, instead of depreciating.   If you took the election, it applied to all your businesses, rental properties, or farms.   So, you probably did expense it.   It would be listed as an expense on your Schedule C if you expensed it using the election.  

If you did not claim it, yes you could go back and claim it, but you would have to amend your past returns to do so.  If you did not expense it in 2019, you can amend to add the expense.   If it cost over $2500, you would not be able to use the election and you would have to depreciate it, which would require amending 2019 and 2020 to take the depreciation for each year.   But you probably already expensed it if you made the election.  Check your Schedule C.  

And yes, since you received the discount, you can report the cost as the net amount, less the $100.

[Arch Stanton]

I don't see it listed anywhere in Schedule C. Is there a specific line number?

[ThomasM125]

If you expense the purchase, you could treat it as supplies or office supplies. You could also enter it as an other expense and call it "Expensed Assets" or something similar.

[Arch Stanton]

Regarding the new computer purchased in 2021. Which option should I choose:

• I'll deduct the full value of the item this year. (Take the Section 179 deduction)
• I'll take the 100% special depreciation allowance.

The only difference I noticed is the Section 179 deduction takes 1 year to fully depreciate and the special depreciation allowance takes 5 years.

If 1 year means after a year the usage percentage can change or I can sell it without a recapture, then I prefer the 1 year option. I don't want to be locked in for 5 years.

[ThomasM125]

If you chose the 1 year option, you would have to recapture depreciation as ordinary income if you sold the asset at a gain in the second year.