Depreciation Recapture
Quick definition
Adding previously deducted depreciation back into income, triggered when business use of a vehicle falls below a threshold or the vehicle is sold at a gain.
Depreciation recapture is when the IRS requires you to add back depreciation you previously deducted, typically when business use of a vehicle drops below 50% or you sell the vehicle for more than its depreciated value.
The business-use trap
If you claimed Section 179 or bonus depreciation in year one and your business-use percentage later falls below 50%, you may have to recapture part of those deductions as income.
Why records matter
Recapture math depends on accurate year-by-year business-use records. A contemporaneous log is what lets you prove your percentages if the calculation is ever questioned in an audit.
Related terms
Depreciation
Deducting the purchase cost of a business vehicle over its useful life, instead of all at once.
Section 179
A federal tax provision that lets businesses deduct the full cost of qualifying vehicles in the year of purchase, instead of depreciating them over time.
Business-Use Percentage
Business miles divided by total miles. Used to scale the actual-expenses deduction.
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