43.10 Recapture of Deductions on Business Car, Truck, or Van

If you use your car, truck, or van more than 50% for business in the year you place it in service, you may use MACRS accelerated rates (43.5). If business use drops to 50% or less in the second, third, fourth, fifth, or sixth year, earlier MACRS deductions must be recaptured and reported as ordinary income. In the year in which business use drops to 50% or less, you must recapture excess depreciation for all prior years. Excess depreciation is the difference between: (1) the MACRS deductions allowed in previous years, including the first-year expensing deduction and bonus first-year depreciation allowance (43.4), if any, and (2) the amount of depreciation that would have been allowed if you claimed straight-line depreciation (43.6) based on a six-year recovery period.

The recapture rules do not apply if you elected straight-line recovery instead of applying accelerated MACRS rates.

Recapture is reported on Form 4797, which must be attached to Form 1040. Under the listed property rules, the 50%-business-use test and recapture rule apply to cars, trucks, vans, boats, airplanes, motorcycles, and other vehicles used to transport persons or goods, but there are exceptions for ambulances, hearses, and other trucks and vans that are considered qualified non-personal-use vehicles (43.4).

Any recaptured amount increases the basis of the property. To compute depreciation for the year in which business use drops to 50% or less and for later years within the six-year straight-line recovery period, you apply the straight-line rates (43.6).

EXAMPLE
On June 28, 2008, you bought a used car for $11,000 that you used exclusively for business in 2008, 2009, 2010, and 2011. The half-year convention applied to your MACRS deductions (43.5). The deductions figured under the half-year convention table ($2,200 for 2008, $3,520 for 2009, $2,112 for 2010, and $1,267 for 2011) applied as they were less than the annual ceilings for those years ($2,960, $4,800, $2,850, and $1,775, respectively). During 2012, you used the car 40% for business and 60% for personal purposes. As you did not meet the more-than-50%-business-use test in 2012, excess depreciation of $1,399 is recaptured and reported on Form 4797 for 2012:
   Total MACRS depreciation claimed (2008–2011)  $9,099
   Total straight-line depreciation (43.6) allowable:
   2008—10% of $11,000 $1,100
   2009—20% of $11,000  2,200
   2010—20% of $11,000  2,200
   2011—20% of $11,000  2,200   7,700
   Excess depreciation recaptured  $1,399
Your 2012 depreciation deduction is $880 ($11,000 × 20% straight-line rate in fifth year × 40% business use).
The amount of recaptured depreciation increases the adjusted basis for purposes of computing gain or loss on a disposition of the automobile.
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