Don't overlook these!
Updated for 2012
What to do if business use drops to 50% or less:
To qualify for accelerated MACRS, business use of your vehicle must be more than 50%.
Using accelerated MACRS allows you to deduct a higher amount of depreciation in the early years of the recovery period than you could deduct using the straight-line method of depreciation.
In the year business use drops to 50% or less you must stop using accelerated MACRS and start using straight-line depreciation for that year and all remaining years of the asset's recovery period.
As a result of this drop in business use to 50% or less, all that extra depreciation deducted in the early years for the asset by accelerated MACRS has to be recaptured, meaning, included in your income in the year business use dropped.
Business use drops to 50%
Excess depreciation (the recaptured amount) is $4,018, figured as follows:
Report the recaptured amount, $4,018, in Part II of Form 4797, Sales of Business Property and attach it to Form 1040.
Report the recaptured amount as income on the same form or schedule you used to take the depreciation deduction.
So, if you're self-employed and used Schedule C to deduct the depreciation, just add the $4,018 on the Other income line of Schedule C.
If you were an employee and used Form 2106, report the recaptured amount as Other income on Form 1040.
Add the recaptured amount to the adjusted basis of the property for figuring gain or loss when the property is eventually disposed of.
When the Recapture Rule Does Not Apply:
The recapture rule does not apply if you had always been using straight-line depreciation for the property (there would not be any excess depreciation involved).
Car Expenses-Depreciation: Six Points to Keep in Mind Before Choosing a Depreciation Method
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