converting to personal use

[oceanlovin'ea]

client started a small business in 2010 and bought equipment for his business. He got a full time job that takes all his time and so he has stopped doing his small business after September.

Part of the equipment I depreciated MACRS. Some I did section 179. So now it all has to be converted to personal use. Also he stopped using the equipment after 9 months. Do I manually adjust the depreciation for just 9 months of this year?

From my reading, I think that I have to recapture depreciation on all the equipment using straightline depreciation. Is that correct? Then I do nothing with them until they are sold. Then we will see if they have a loss or gain on the sale.

Any help will be appreciated?

Linda, EA

[JG EA]

client started a small business in 2010 and bought equipment for his business. He got a full time job that takes all his time and so he has stopped doing his small business after September.

Part of the equipment I depreciated MACRS. Some I did section 179. So now it all has to be converted to personal use. Also he stopped using the equipment after 9 months. Do I manually adjust the depreciation for just 9 months of this year?

From my reading, I think that I have to recapture depreciation on all the equipment using straightline depreciation. Is that correct? Then I do nothing with them until they are sold. Then we will see if they have a loss or gain on the sale.

Any help will be appreciated?

Linda, EA

It depends on whether it is listed or not.
TTB 9-16 I think this covers the recapture. I have a handy dandy chart at work which I have never committed to memory.

Business use below 50%. If business use of property falls below
50% during the regular MACRS recovery period, all or part of the
Section 179 deduction must be recaptured as excess depreciation.
• Include the recapture amount as ordinary income in Part IV,
Form 4797, Sales of Business Property. See Recapture amount, next
column.
• The recapture amount is carried to “Other Income” on the same
form or schedule on which the original Section 179 deduction
was claimed Note: This may cause the recapture amount to be
subject to SE tax.
• Increase the basis of the property by the recapture amount
Recapture amount:

...
1) Figure depreciation that would have been allowable on the
property under regular MACRS. Begin with the year the property
was placed in service and include the year of recapture.
2) Subtract the depreciation in (1) from the Section 179 deduction
actually claimed. The result is the recapture amount.
Listed property recapture. If business use of listed property
falls to 50% or less during the assets ADS recovery period, the
excess depreciation (including any Section 179 expense) must be
recaptured. The recapture amount is the amount of depreciation
(including special depreciation) and Section 179 expense actually
claimed over the depreciation that would have been allowed
using the SL method minus the assets ADS recovery period. See
Tab 10 for more information about listed property

As far as the 9 months go. I'm not sure.

[oceanlovin'ea]

Thanks JG. I was looking under depreciation recapture...didn't think to look at section 179 recapture. Now I have the right page.

Linda, EA

[oceanlovin'ea]

bonus depreciation

I took bonus depreciation on 2 items last year that I used MACRS for. If I convert these to personal use, wouldn't I have to recapture the bonus depreciation figuring depreciation on strictly a 7 year life?

Linda, EA

[JG EA]

My little chart:

If not in sale year:

-----------------------------------Listed----------------------------------------Non listed

MACRS------------ % of decrease to 50% or less
-----------------------or conversion to personal use
-----------------------(recapture over ADS - SL)



179 -----------------% of decrease to 50% or less-------------% of decrease to 50% or less
----------------------or conversion to personal use----------- or conversion to personal use

----------------------(recapture over ADS-SL)--------------------(recapture over reg depre)

If it is wrong don't tell me.

[S T]

So we recapture 179 regardless of whether it is listed property or not and it falls below 50% biz use?

What about the special/bonus depreciation - from what I can read - it is only if it is listed property that is recaptured

Now I am really confused,

Sandy

[geekgirldany]

I thought listed or not if it went below 50% it is recapture on Sec 179.

I am currently in the same position. Client said he may or may not restart the business for TY 2011. He did not so I need to get the equipment off.

So some was Section 179 that has to recapture and some was MACRs. What I had done in the past was ask the client for a FMV on the equipment and used that as the "sale price" so everything is reported in the year the business closed. Is this not correct?

[Gretel]

I thought listed or not if it went below 50% it is recapture on Sec 179.

I am currently in the same position. Client said he may or may not restart the business for TY 2011. He did not so I need to get the equipment off.

So some was Section 179 that has to recapture and some was MACRs. What I had done in the past was ask the client for a FMV on the equipment and used that as the "sale price" so everything is reported in the year the business closed. Is this not correct?

Here are my 2 cents.

1. Section 179 has to be recaptured upon 50% or less biz use no matter if listed property or not.

2. Bonus Depr has only to be recaptured if listed property.

3. Assets owned by a Sch. C biz are not deemed to be sold when converted to personal use. When they are actually sold then you deal with gain or loss issues.

[JG EA]

Here are my 2 cents.

1. Section 179 has to be recaptured upon 50% or less biz use no matter if listed property or not.

2. Bonus Depr has only to be recaptured if listed property.

3. Assets owned by a Sch. C biz are not deemed to be sold when converted to personal use. When they are actually sold then you deal with gain or loss issues.

.
3: And don't forget to increase the basis by the recapture amount.