My question is about self-employment business expenses. The De Minimis Safe Harbor election allows us to deduct the expense of items for a business, rather than depreciating them over several years, if the cost of the item is below a certain threshold (currently $2500). I'm wondering how to handle retiring a business asset for personal use.
For context: I am a software engineer, primarily developing video games and other real-time 3D applications. I have a high-end computer in my home office that I wrote off as a single De Minimis expense and only use for work, and a separate older computer in a different room that I use for gaming and personal use. Eventually, I will want to upgrade components in my work computer. Once I upgrade a component, I'll no longer need the old component for work. Because my work computer is newer and more powerful than my gaming computer, I could also swap the component into my gaming computer as an upgrade. I'm not sure what kind of accounting I'd need to do at this point to properly convert the component for personal use.
Simplified hypothetical example: I buy a pre-built work computer as a whole for $2000 and deduct the full cost of the computer as a De Minimis Safe Harbor expense on my taxes for that year. The computer includes a graphics card with a retail value of $500. Three years later, I replace the graphics card with a newer model. The original graphics card, now 3 years old and used, now has a market value of $250. My impression is that at this point I would have a tax obligation to the IRS for this portion of the work computer that is no longer being used for work.
My impression is that I could sell the used graphics card for $250, report this sale as a gain and pay taxes on it, and that would cover my tax obligation. Is that correct?
What if I put the graphics card into my gaming computer? This would mean I'm using the item for personal use, so presumably I'd still have a tax obligation. My best guess is that I'd "sell" the used graphics card to myself at its current market value of $250, report this as a gain, and pay taxes on it, even though no money actually changed hands. Is that correct? Presumably I'd need some kind of records to prove that I used a fair market value?