Discussion:Sec 179 Recapture and New Reg 1.168(i)-4

Client has self-employed lawn care business in 2003. Buys $ 5,000 7 yr asset and takes 179. Works business all of 2003 and 2004. Beginning 1/1/05 decides college is a better idea and, in essence, does no work in 2005 and does not intend to work this business again. He still owns asset. What, if any, tax effect does he have? From Publication 946 "How to Depreciate 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.

WARNING 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 Publication 544 under Section 1245 Property."

From New Reg. 1.168(i)-4 c) Conversion to personal use. The conversion of MACRS property from business or income-producing use to personal use during a taxable year is treated as a disposition of the property in that taxable year. The depreciation allowance for MACRS property for the year of change in which the property is treated as being disposed of is determined by first multiplying the adjusted depreciable basis of the property as of the first day of the year of change by the applicable depreciation rate for that taxable year (for further guidance, for example, see section 6 of Rev. Proc. 87–57 (1987–2 C. B. 687, 692) (see §601.601(d)(2)(ii)(b) of this chapter)). This amount is then multiplied by a fraction, the numerator of which is the number of months (including fractions of months) the property is deemed to be placed in service during the year of change (taking into account the applicable convention) and the denominator of which is 12. No depreciation deduction is allowable for MACRS property placed in service and disposed of in the same taxable year. See §§1.168(k)–1T(f)(6)(ii) and 1.1400L(b)–1T(f)(6) for the additional first year depreciation deduction rules applicable to property placed in service and converted to personal use in the same taxable year. Upon the conversion to personal use, no gain, loss, or depreciation recapture under section 1245 or section 1250 is recognized. However, the provisions of section 1245 or section 1250 apply to any disposition of the converted property by the taxpayer at a later date.

Does this negate the 179 recapture?

Business use (0) divided by total use (0) is 100%.

s corp has 5 year property. purchased in 03 and 04 179 was taken. Corp is no longer operating and equipment was put in personal use and now being used in sch c of sole shareholder of corp. two questions. Do i have recapture on 179 taken. (Confused by Msmith above, found same regs). Also, what is basis when put into new sch c?

Thanks