Section 179

[ThrowawayOK]

My previous tax year 2020 shows I had an asset of $235. I'm unable to see what I may have typed into the electronic worksheet, but when I download the pdf it shows it listed under Section 179 <7 year property.> 

Based on the 7 year classification I am guessing this was a mobile phone (235 is slightly less than the receipt shows I paid but I can't imagine what else it could be) but I thought items under $2,500 could not be generated onto Section 179. 

I am not sure how this happened. As I understand it, Section 179 is a single year expense and not reported as a depreciating asset year to year, so this had to be an item purchased and placed in use last year (like the phone.) 

Is this a mistake of the software or is this actually allowed?  Do I need to do anything for 2021 since I continued to use the phone, but will end its usage in 2022 or 2023? 

I have a $600 computer purchase for 2021 but now I am afraid TT will generate it onto Section 179 instead of Safe Harbor.

[Anonymous_]

@Mike9241 

[Mike9241]

5 and 7-year tangible personal property qualify for 179 regardless of their cost.  so if you took it on a $200+ phone in 2020 you have done nothing wrong.

however,

A tax law allows you to deduct as an expense any item costing under $2,500 in one year. An exception: expenses associated with a land or home improvement must be lumped together as part of the land or home improvement and deducted or depreciated according to applicable rules. The $2,500 rule applies to each individual item. So, if the receipt says, “Furniture $4,000 – $2,600 sofa, $400 chair, $1,000 table” you can deduct each item in one year, except the sofa.
There is no limit to how many items you can deduct that cost less than $2,500 in one year.
The $2,500 amount applies to the original price, not to the amount after applying your Time-Space Percentage. So, if the item cost $4,000 and your Time-Space Percentage is 40%, the business portion is $1,600 ($4,000 x 40% = $1,600), but it’s not eligible for the $2,500 rule.
To take advantage of this rule you must attach a statement to your tax return saying that you are electing this rule. See my article

 the election is under IRS reg 1.263(a)-1(f)

in Turbotax you can select this election to be included with your return

it's the De Minimus Safe Harbor Election 

you should come to the question to check off the election when it asks about acquiring assets under 2500 in the schedule C section 

to expense you could show the $600 computer cost under office supplies

if you do not make this election you can still elect 179 or the special depreciation deduction under 168(k).

the only difference between the two is that 179 is limited to net business income before the deduction whereas 168(k) does not have this limitation

[ThrowawayOK]

Thank you.

1. Given that the computer is over $200, don't I have to list it under assets rather than a regular expense category? 

I don't have an office so I don't think I can list it there anyway. 

2. Another issue I have with 179 is recapture. Do I need to re-report the phone this year or do I wait until next year and report it as damaged/taken out of use? 

3. My $600 computer replaced a laptop that went caput in April last year and I'm reporting that laptop as taken out of service. That laptop had been on yearly depreciation. Am I still allowed to switch over to safe harbor expense for the new equipment in the same asset class if I have the laptop in its final year of use?

[Mike9241 · Accepted solution]

if you make the election to expense it because it is under $2500 you do not enter it in the asset section. as I said office expense is as good a category as any or supplies or make your own custom category -small tools. 

don't bother with the phone to recapture the 179 as long as you didn't convert it to personal use or sell it. if neither sold nor converted to personal use what happens is the 179 is recaptured but then you end up with some MACRS depreciation with the rest of the cost taken as an ordinary loss so there is no effect on your taxable income or taxes. if sold or converted to personal use the recapture is reported on the return for the year that it happened

It's an annual election so what you did and what the asset was years ago has no effect on the current year. 

[ThrowawayOK]

Thank you! The last one was the big hangup because I used it up until it randomly died in April, so I was worried I could not claim that I'd been using a "consistent process since the start of 2021."  I had not originally foreseen having to scrap it and buy a new computer! Now I have scrapped the old one as a $0 Sale for a net loss and will be expensing everything purchased in 2021 under Miscellaneous after making the Safe Harbor election in Assets. Hopefully I got this correct. 

The $235 Section 179 from 2020 is confusing because it was listed under a separate business and for some reason I can't access info about it no matter what combination of answers I choose in the 2021 asset questionaire. Even if I wanted to report recapture I have no idea how I would do it since I can't seem to carry over that entry. With the old computer I was able to see previous entered information, though it wasn't 179 so perhaps that's why. Hmm.