When Must You Recapture the Deduction?

Terms you may need to know (see Glossary):

Disposition Exchange Recapture Recovery period Section 1245 property

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. In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. You also increase the basis of the property by the recapture amount. Recovery periods for property are discussed under Which Recovery Period Applies? in chapter 4.

Caution: If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Instead, use the rules for recapturing depreciation explained in chapter 3 of Pub. 544 under Section 1245 Property. For qualified real property, see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. You can find Notice 2013-59 at IRS.gov/irb/2013-40_IRB/ ar14.html .

Caution: If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement.

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

1. 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.

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

Example. In January 2023, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. The property is not listed property. The property is 3-year property. Paul elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Paul used the property only for business in 2023 and 2024. In 2025, Paul used the property 40% for business and 60% for personal use. Paul figures the recapture amount as follows.

Section 179 deduction claimed (2021) . . . . . . . . $5,000.00

Minus: Allowable depreciation using Table A-1

(instead of section 179 deduction): 2023 . . . . . . . . . . . . . . . . . . . . . . . . .$1,666.50 2024 . . . . . . . . . . . . . . . . . . . . . . . . . 2,222.50 2025 ($740.50 × 40% (0.40) (business)) . . . . . . . . . . . . . . . . . . . . 296.20 4,185.20

2025—Recapture amount . . . . . . . . . . . . . . . . $814.80

Paul must include $814.80 in income for 2025.

Caution: If any qualified zone property placed in service during a particular year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return.