Source: http://farmdoc.illinois.edu/legal/articles/ALTBs/ALTB_04-01/ALTB_04-01.html
Timestamp: 2018-01-19 01:57:46
Document Index: 95644550

Matched Legal Cases: ['§179', '§179', '§179', '§179', '§179', '§179', '§179', '§179', '§179', '§168', '§179', '§179', '§179', '§179', '§179']

farmdoc: ALTB 04-01 Internal Revenue Code §179 Expensing
ALTB 04-01 Internal Revenue Code §179 Expensing
Taxpayers who have a farm or business have been allowed to claim a first year tax deduction up to $24,000 on qualifying purchases, e.g., of machinery and equipment. This deduction reduces the basis in the asset for purposes of regular depreciation. The Jobs and Growth Tax Relief Reconciliation Act of 2003 increased this deduction to $100,000 for tax years 2003 - 2005. The deductions will be reduced to $25,000 in 2006. The rules governing §179 are discussed in this article, using primarily agricultural examples.
Example 1 In 2003, Tom is an active farmer and has a net farm profit of $70,000 before any §179 depreciation. His wife Mary has a part-time craft business which reports a loss of $5,000 and she also works at the local WalMart where she has a gross income of $15,000. Tom and Mary are limited to a total §179 deduction of $80,000 if they have at least that amount of qualifying purchases.
The deduction becomes limited if the taxpayer has over $400,000 of qualifying purchases during the year and is completely phased-out at $500,000 of purchases.
Example 4 Assume the same facts as Example 3 except Partner B has already used $95,000 of §179 deductions from purchases made by his sole proprietor business. Since he is personally limited to a $100,000 deduction, he will only want to elect to expense $90,000 of purchases from his business. If B has excess-pass through §179 deductions they are lost.
Any §179 deduction from eligible purchases in a partner’s sole proprietor business can be carried forward.
a. An integral part of manufacturing, production, or extraction or of furnishing
transportation, communications, electricity, gas, water, or sewage disposal services.
b. A research facility used in connection with any of the activities listed previously, or
c. A facility used in connection with any of those activities for the bulk storage of fungible
4. Storage facilities (except buildings and their structural components) used in connection
with distributing petroleum or any primary product of petroleum.
2. Property contained in or attached to a building (other than structural components), such
as refrigerators, grocery store counters, office equipment, printing presses, testing
equipment, and signs.
4. Breeding livestock, including horses, cattle, hogs, sheep, goats, mink, and other
furbearing animals.
Note. Land and land improvements, such as buildings and other permanent structures and their components, are real property, not personal property. Land improvements include swimming pools, paved parking areas, wharfs, docks, bridges, and fences. However, agricultural fences and drainage tile do qualify for IRC §179, as do single purpose agricultural or horticultural structures.
2. Certain property used predominantly to furnish lodging or in connection with the
furnishing of lodging
4. Property used predominantly outside the United States (except property described in
IRC §168(g)(4) —commercial airliners, ships, containers, etc.)
Example 7 Horace timely files his 2003 return on April 15, 2004. He later wishes to claim a §179 deduction. The last date Horace may claim the deduction on an amended return is October 15, 2004. When Horace files his amended return he must write “Filed pursuant to section 301.9100-2” on the amended return.
• Marginal tax bracket of the taxpayer.
• Profitability of the business and availability of other income to satisfy the taxable
• Future marginal tax rates of the client.
• Other asset acquisitions during the year.
• Status of estimated tax payments made for the current year.
• Does the client need the asset for the business, or is the acquisition more tax
• Will the subject asset(s) be sold or traded in later years?
• Did the taxpayer purchase both shorter use-life and longer use-life assets?
• IRC §179 deduction used as an effective means to reduce possible vulnerability to
repair versus capital improvement issues with the IRS.
• Allocation of IRC §179 from other entities.
• Use of IRC §179 and its impact on social security benefits.
Related Article Click here to view an article regarding the 30%/50% special depreciation allowance.
Related Article Click here to view an article regarding the combined use of the §179 deduction and the 50% special depreciation allowance.