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Section 179 allows a current deduction for the acquisition cost of business-use assets. Required: Describe the...

Section 179 allows a current deduction for the acquisition cost of business-use assets.

Required:

Describe the eligibility requirements and deduction limitations.

Why would a taxpayer choose to not elect the Section 179 deduction if the property were eligible?

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Answer #1

First of all, in order to depreciate property, the property must be used in an income producing activitv or business. Pleaseenerally, the total amount deducted under § 179 cannot exceed the taxpayers total working income for that year. This includes not only income from the business itself for which the 8179 deduction has been taken, but it can also include earnings as an employee or from operating another business. Any unused portion of the deduction can be carried forward to future tax years until the deduction is used up Because the § 179 deduction can only be used to lower taxes on working income. earned from either a business or as an employee, passive investors are not entitled to the $179 deduction even if they are a partner in a business that can take the deduction. So if a partner becomes disabled, and is not able to work for the entire year, then he cannot take any §179 deduction, since any income received from the business will be considered passive income There is only one § 179 deduction maximum for a partnership, limited liabili company, or an S corporation. The partners, members, or shareholders of these business entities can only claim the §179 deduction in proportion to their ownership interest. Each pass-through entity is subject to the same §179 deduction rules as individuals. The pass-through entity must 1st calculate what §179 deduction it is entitled to, then the deduction is allocated to the active owners of the entity in proportion to their ownership interest. If the pass-through entity cannot claim the deduction because of insufficient income, then none of the owners can claim the deduction from that entity, even if they have adequate income from other pass-through entities or from a sole proprietorship or from wages as an employee.A disadvantage for married couples is that they are limited to the § 179 limits of a single taxpayer, even if they have separate businesses or if they filed taxes separately. However, marriage can be an advantage if the business-owning spouse has losses that exceed her total income, since she can deduct the § 179 expense from the working spouses income as long as that income exceeds the amount of the deduction. The § 179 deduction is limited to the actual amount of the purchase. If there is any trade-in allowance, then that must be deducted from the cost of the equipment to determine the maximum 8179 deduction

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