What exactly is the special depreciation allowance? Should I opt in or out? What does that mean for me now and in the future if I were to say yes and take the deduction?

[puertoricancutie]

I purchased a new PC last year which is for personal AND business use. I'm a voice actress and I use my pc to create voice work for paid jobs.

[DianeW777]

You can choose to use Special Depreciation which allows you to expense 100% of the cost of the business use percentage of your asset the first year, likewise there is Section 179 expensing election if the business use is greater than 50% business use. Both allow this choice ONLY in the first year an asset is purchased and placed in service for income producing businesses.

• What is Section 179 Deduction?

When it comes to a computer, the basis for the business use percentage is time spent on business activity versus time spent for personal activity.  This time log should be maintained as proof of how you arrived at the  business use percentage.

The code provision permitting this deduction is Section 168(k). So now, in year 2021, businesses may potentially receive a 100% deduction of the cost of “qualified business property”, after first applying any applicable Section179 deductions. 

• Rules Under the Tax Cuts and Jobs Act
• IRS Publication 946  (2021 version is still in draft, however 2020 can be used)

Qualified Property for Special Bonus Depreciation: 

Certain qualified property acquired after September 27, 2017.
Certain qualified property (defined below) acquired after September 27, 2017, and placed in service before
January 1, 2023 is eligible for a special depreciation allowance of 100% of the depreciable basis of the property (percentage of cost used for business).  

Qualified property is:  • Tangible property depreciated under MACRS with a recovery period of 20 years or less.  Your computer is tangible property.

Consequences of making the choice of either Section 179 or Special Depreciation:

• Recapture. When you dispose of property for which you claimed a Special Depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the depreciation previously allowed or allowable for the property, including the Special
  Depreciation allowance and/or Section 179. This would apply to regular depreciation as well.
• Partial business use. When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use.  You may have to recapture the section 179 deduction if, in
  any year during the property's recovery period, the percentage of business use drops to 50% or less. 
• Disposition: This requires recapture as ordinary income from sale proceeds up to the full amount of any Special Depreciation, Section 179 and regular depreciation expensed on all returns for an asset.

All of this detail can be found in the publication included above.  These options were created to support small businesses for growth.  @Opus 17  has included important details to assist you as well.

@puertoricancutie 

[Edited: 01/21/2022 | 7:08a PST]

[Opus 17]

The consequences of taking special depreciation (or any depreciation) is that you may have a taxable event when you sell the computer or stop using it for your business.

A computer is an asset, which much generally be depreciated over it's useful life, as defined in accounting manuals.  I think a computer is 5 years, although I haven't double-checked.  When you place the asset in service, you begin to depreciate it using the cost (if bought new) or the fair market value at the time it was placed in service (as a used computer).  Using simple depreciation, you would deduct 1/5 the cost over 5 years (more or less).  With special depreciation, you can deduct the entire cost up front.

There are two consequences here.  First, if you stop using the computer in business before the end of the class depreciation period, you have to repay (recapture) the unused part of the depreciation.  (This rule only applies to section 179 depreciation.)

Second (and this rule applies to all depreciation), if you sell the computer later, even as used, that may be taxable business income.  If you take regular depreciation over 5 years or special depreciation, you deduct the cost of the asset as a business expense.  That means that it's cost basis—the amount of after-tax dollars you have invested in the asset—is reduced to zero. If you sell it for more than the cost basis, the difference is a taxable capital gain.  (This may not apply to you if you only depreciate a percentage of business use.  If you paid $3000 and you claim 2/3 business use, then your cost basis after depreciation is $1000, and you would only have a taxable event if you sold it for more than $1000.  If you sold it for less than $1000, you may even be able to deduct 2/3 of the "loss" as an additional business expense.)

Once you list the asset in Turbotax, the program will track it, and if and when you dispose of it, you must report that in Turbotax and the program will tell you the consequences.

If you don't use the computer 100% for your business, then you can only depreciate the percentage of business use.  If you are unlucky enough to be audited, the IRS will want to see some kind of reliable written record showing how you determined the business use percentage.  You might have a data log or a time log or an app you use to keep track of the hours you use it for business and personal use, but you must have some type of reliable record, otherwise, the IRS does not have to allow it as a business expense.