MTW <mtwingcpa[at]yahoo.com> wrote:

- quote -

But, upon further reflection, I might have lied. <g
I think it would work like this for a $300/3 year life asset:

1) First year deduction is based on taking the 179 deduction
for 60% business use = $180.

2) Second year business use is 90% of $300 = $270 less prior
179 deduction of $180 = $90 basis. Applying 3 year straight
line (per your example) would yield a second year deduction
of $30.

3) Third year business use is 70% of $300 = $210 less prior
179 deduction of $180 = $20 basis. Applying 3 year straight
line would yield a third year deduction of $7.

So, maybe you would get $217 (180 + 30 + 7) depreciation
over the life of the asset.

MTW

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Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote:

- quote -

I think your analysis is correct. So, one might want to
think twice before claiming 179 on an asset like this if it
appears likely that business use will INCREASE in future
years.

Of course, on the other hand, if a high percentage of use is
claimed in the initial year, followed by rapidly declining
use in future years, an auditor might look closely at the
validity of the initial percentage.

MTW

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What are the subtleties of Section 179 depreciation when the
business use percentage changes from year to year (though
remains over 50%, as I know that when it goes below 50%
there are recapture issues).

For example, with normal depreciation my procedure (which in
fact was endorsed by some people here :-) to handle the case
when the business use percentage changes from year to year
is to first draw up a depreciation schedule showing the
per-year depreciation as if the business use was 100% each
year and then multiple that "raw" depreciation by the actual
business use %age to get the amount of depreciation to take.
For example, imagine a $300 asset depreciated straight-line
over three years (not claiming that's realistic -- just want
to make the math nice and easy for the example :-)

Raw Depr Business %age Depr Taken
$100 60% $60
$100 90% $90
$100 70% $70

That I can wrap my head around.

But what happens when you use Section 179? Using the
example above, in the year the asset was placed in service,
the business use %age was only 60%, so as far as I can tell
you'd only be able to write off $180 (ignoring any of the
other limitations on Section 179 depreciation). It looks
like I lose compared to "normal" depreciation, which would
have allowed me to write off $220 over three years.
Conversely, if the business use percentages were instead
90%, 60%, 70%, it looks like I'd get to write off $270, and
this time I "win" relative to normal depreciation. So is
that how it works? Business use in the year of the Section
179 deduction controls and what comes after that is
irrelevent (as long as it remains over 50%)? I've read Pub
946 and (not surprisingly :-) it doesn't go into this.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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