Is there a method to deduct business equipment if I don't want to deal with potential future depreciation recapture?

[crash345u]

I might close my self employed Photography business in a couple years but plan to purchase equipment (cameras, lenses)  before then which cost less than $2500. I  plan to write it off all at once.  I use the cash method of accounting.

All the expensing methods are so confusing  (Bonus depreciation, De minimus safe harbor, Section 179)

Is there any way to deduct these expenses without worrying about recapture if I close the business in a few years?

[DawnC · Accepted solution]

Basically, gain up to the amount of previous depreciation deductions is tax as ordinary income, rather than as a capital gain (which is typically taxed at a lower rate).   Depreciation recapture ensures that the tax benefits received from depreciation deductions are effectively "paid back" if the asset appreciates in value by the time of its sale.

If you expense them, as opposed to depreciating them, there is no recapture.   The De Minimis Safe Harbor election lets you deduct the full cost of items worth $2,500 or less, instead of depreciating.  The election is available for Schedule C businesses, rentals, farms, and farm rentals.

For instructions on claiming the De Minimis Safe Harbor Election in TurboTax, see the TurboTax FAQ below and select your product.

Expensing Assets with the Safe Harbor Election

See Section 179 - Business Assets

From - Depreciation Recapture: Definition, Calculation, and Examples

• Depreciation recapture occurs when you sell business property for a gain after taking depreciation deductions. This tax rule requires you to report part of your gain as ordinary income to “recapture” some of the benefit you previously received from the deductions.
• The amount and type of depreciation recapture can vary depending on whether the property is classified under Section 1245 (personal property such as furniture and equipment) or Section 1250 (real property such as commercial buildings and structural components) of the tax code, and whether straight-line or accelerated depreciation was used.
• You might be able to minimize the tax hit from depreciation recapture. Potential strategies include purchasing replacement property in a Section 1031 exchange, timing the sale of business property to when you’re in a lower tax bracket, and investing in a Qualified Opportunity Fund.

How much depreciation is recaptured and treated as ordinary income depends on whether the property you sell is “Section 1245 property” or “Section 1250 property.  Depreciable real property used in your business is typically considered Section 1250 property.   Section 1250 property placed in service after 1986 is likely to be depreciated using the straight-line method under the Modified Accelerated Cost Recovery System (MACRS). As a result, it’s rare to have gain from the sale of Section 1250 treated as ordinary income these days.