If you operate your business as a corporation, the corporation owns the assets, and you can’t simply convert a business asset to personal use as you can with a proprietorship. When you operate as a corporation and you want the corporation’s assets, the corporation needs to effectively sell you those assets. We will cover the corporate strategies in a later article.

In this article we will explain what you need to do when you convert rental property and/or proprietorship personal property such as cars, desks, and computers (mostly called MACRS1 property) to personal use. You need to know four important rules:2

The proprietorship or rental property conversion of MACRS property from business to personal use does not require immediate recognition of (a) gain or (b) loss.

You need to modify the depreciation deduction in the year of conversion from business to personal use to reflect the number of months you used the asset in your business or with your rental properties.

At the time of conversion, you do create taxable income (called recapture income) from your previous expensing deductions under Section 179 and excess depreciation deductions on Section 280F(d)(4) listed property (such as vehicles and computers).

When you sell or otherwise dispose of this now personal but formerly business property, you ... Log in to view full article.