Question

During the prior three years, listed property was being used 75% for business and 25% for personal use. For the current and future years, business use has dropped to 40%. Which of the following statements is correct?

A. The depreciation for the current and future years must be computed using the MACRS straight-line method over the MACRS ADS recovery period, but no recapture is required.
B. Since the business use has dropped to 50% or below, the total amount of depreciation for all prior years must be recaptured.
C. Since the business use has dropped to 50% or below, the excess of accelerated depreciation over straight-line for all prior years must be recaptured.
D. Since the business use has dropped to 50% or below, just Section 179 expense and bonus depreciation taken on the asset must be recaptured.

Answer 1

The correct statement is that depreciation should be computed using the MACRS straight-line method over the MACRS ADS recovery period, and no recapture is required.

Step-by-step explanation:

The correct statement in this case would be option A. When the business use of listed property drops to 50% or below, the depreciation for the current and future years must be computed using the MACRS straight-line method over the MACRS ADS recovery period, but no recapture is required.

Recapture is required only when the business use drops to less than 50%, which is not the case in this scenario. Therefore, options B, C, and D are all incorrect.

By using the MACRS straight-line method, the depreciation expense is spread evenly over the recovery period, regardless of the change in business use. This ensures that the depreciation expense is based on the asset's useful life and not affected by changes in usage.