179 Recapture - Listed Property Mechanics

Technical topics regarding tax preparation.
#1
IDCPA  
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I think this is a simple question (which is never the case).

I assume my SL/ADS recomputed depreciation for use in 179 recapture (280F) needs to factor in the business use % each year, right?

i.e., if in 2016 the business use of a fully 179'ed vehicle (100% use in prior year placed in service) was 80%, I would use 80% of the potential (100%) depreciation under SL/ADS for 2016, right?

So, if we're talking a $30K listed property vehicle, 2016 depreciation for the calculation would be $30K x 20% (3rd year - 5 year property) x 80% business use.

That's gotta be right, but I just wanted to confirm. TIA
 

#2
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I think I've confirmed my above assumptions, but it's been challenging to adjust my Drake software to correctly report it. Which brings me to my next question.

If the $30K vehicle was 100% 179'ed, and now I'm recapturing in year 5 $10K of the depreciation (179 over SL/ADS), I've been thinking the correct calculation for year 5 depreciation would be as follows:

$30,000 x 20% (straight line) x 30% (business use) = $1800 of 2017 depreciation expense.

Logically, we could have deducted 20% x 80% business use in 2015/2016, so I should be able to deduct the 30% business use of the 20% of straight line Taxpayer is entitled to...

...but instead my software is taking $30K x 30%, for a depreciable basis of $9K. And since we've already deducted $20K ($30K 179, less $10K recapture), Drake is calculating no depreciation for 2017.

I do not think my software's calculation is correct, but I'm not sure. Can someone provide some clarification? Thanks.
 

#3
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A while back, we had this interesting discussion, which may or may not help. viewtopic.php?f=8&t=12140&p=110479&hilit=+business+use#p110479

You are dealing with 179 recapture, and the linked discussion, early on, added an assumption that 179 was not involved. Otherwise, it seems apposite.
 

#4
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Logically, I tend to agree with Dave. In the discussed example, why would we not be allowed 98+% of the total 21 years worth of depreciation? It just doesn't make sense. But Jeff, converted you, and my software seem to disagree with that logic. I can easily ignore those first 2. The last one is a huge headache (not suggesting the former duo are or are not a huge headache - they may well be but I don't have enough information to go on)

The fact that I've got software that calculates the depreciation using the "harsh method"/Option 2 in the referenced thread, and the pain of overriding the software calculations leads me to go with your suggested conclusion - business use is multiplied by cost to determine unadjusted basis BEFORE applying the depreciation treatment. But I'm not convinced it's definitely the correct approach.
Last edited by IDCPA on 13-Aug-2018 5:13pm, edited 1 time in total.
 

#5
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FWIW, I'm leaning on my software in not reporting current year depreciation, but it calculates the 280F depreciation without regard to the 80% business use in prior years. Instead, it calculates the 4797 amount based on 100% business use. So, I am overriding my software - to increase the amount of recapture - to the Taxpayer's detriment.

In summary, I'm not overriding when it could provide tax relief to a client, and I am overriding to their detriment.

The whole thing stinks.
 

#6
Doug M  
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Are we discussing disposal/sale or business use now below 50%
 

#7
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Doug M wrote:Are we discussing disposal/sale or business use now below 50%

business use now below 50%
 

#8
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IDCPA wrote:I think this is a simple question (which is never the case).


If I had a nickel...
 

#9
Doug M  
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This is the theory. The recapture amount is the amount that would put you in a place where you never took S 179. So, what would have been the MACRS depreciation on the basis of the property with S 179 and compute the depreciation allowed or allowable.

Don't forget to increase the basis of the property for the amount of the recapture. I always take the cost basis of the property x the business use %. Then compute the allowed depreciation.

Pub 946 simply states the following: (there is an example on page 24)

To figure the amount to recapture, take the following steps.

Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Begin with the year you placed the property in service and include the year of recapture.

Subtract the depreciation figured in (1) from the section 179 deduction you claimed. The result is the amount you must recapture.
 

#10
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I agree (and thank you) except this is listed property that requires SL/ADS rather than MACRS.

In my case, $30K of 179 had been taken. If we had used SL/ADS for the prior 4 years depreciation would have been as follows:

2013 - $30K x 100% x 10% = $3,000
2014 - $30K x 80% use x 20% = $4,800
2015 - $30K x 80% use x 20% = $4,800
2016 - $30K x 80% use x 20% = $4,800

Total prior SL/ADS depreciation would be $17,400

Recapture = $30,000 179 taken, minus $17,400 depreciation that would have been allowed = $12,600 of recapture.

Basis in vehicle is now $12,600.

But depreciation for 2017, using your formula - "cost basis of the property x the business use %. Then compute the allowed depreciation." would be calculated as $30,000 x 30% = $9,000. Since we're already deducted more depreciation that that ($17,400 > $9,000) no depreciation is deducted for 2017 and likely for 2018, the last year of the 5 year life.

Again, this agrees with Jeff-Ohio's analysis, as well as Nilodop, and as mentioned my software.

Anyone disagree with those calculations?
 

#11
Doug M  
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The example in pub includes 2017 depn expense to be included to figure the recapture.

include the year of recapture

https://www.irs.gov/pub/irs-pdf/p946.pdf

As a point of info, they got the $740.50 depreciation expense (100% portion) from year 4 of the MACRS three year tables.
 


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