Section 179
Additional First Year Depreciation
This information was extracted from Page 16 Chapter 2,
Electing the Section 179 Deduction of IRS Publication 964, “
How to Depreciate Property”, and is intended only to inform
and should not be relied upon. Consult your tax consultant
before making any tax decision.
How Much Can You Deduct!
Your section 179 deduction is generally the cost of the
qualifying property. However, the total amount you can elect
to deduct under section 179 is subject to a dollar limit and a
business income limit. These limits apply to each taxpayer,
not to each business. However, see Married
Individuals under Dollar Limit, later.
Use Part I of Form 4562 to figure your section 179
deduction.
Trade-in of other property. If you buy qualifying property
with cash and a trade-in, its cost for purposes of the section
179 deduction includes only the cash you paid.
Example. Silver Leaf, a retail bakery, traded two ovens
having a total adjusted basis of $680 for a new oven costing
$1,320. They received an $800 trade-in for the old ovens and
paid $520 in cash for the new oven. The bakery also traded a
used van with an adjusted basis of $4,500 for a new van
costing $9,000. They received a $4,800 trade-in on the used
van and paid $4,200 in cash for the new van.
Silver Leaf’s basis in the new property includes both the
adjusted basis of the property traded and the cash paid.
However, only the portion of the new property’s basis paid by
cash qualifies for the section 179 deduction. Therefore,
Silver Leaf’s qualifying costs for the section 179 deduction
are $4,720 ($520 + $4,200).
Depreciating the excess cost. If you deduct only part of
the cost of your qualifying property as a section 179
deduction, you can generally depreciate the cost you do not
deduct. To figure your basis for depreciation using MACRS
(discussed in chapter 3), you must subtract the amount of
Section 179 deduction from the cost of the qualifying
property. The result is the amount you use to figure any
depreciation deduction. For information on how to figure
depreciation, see chapter 3.
Dollar Limit
The total amount you can elect to deduct under section 179
for 2001 cannot be more than $24,000. If you acquire and place
in service more than one item of qualifying property during
the year, you can allocate the section 179 deduction among the
items in any way, as long as the total deduction is not more
than in $24,000. You do not have to claim the full $24,000.
TIP:
Beginning in 2003, the total amount you can elect to deduct
under section 179 will increase to $25,000.
CAUTION:
After you apply the dollar limit to determine a tentative
deduction, you must apply the business
income limit (described later) to determine your actual
section 179 deduction.
Example. In 2001, you bought and placed in service a$25,000
forklift and a $1,500 circular saw for your business. You
elect to deduct $22,500 for the forklift and the entire $1,500
for the saw, a total of $24,000. This is the maximum amount
you can deduct. Your $1,500 deduction
for the saw completely recovered its cost. Your basis for
depreciation is zero. The basis for depreciation of your
forklift is $2,500. You figure this by subtracting your
$22,500 section 179 deduction for the forklift from the
$25,000 cost of the forklift.
Reduced dollar limit for cost exceeding $200,000. If the
cost of your qualifying section 179 property placed in service
in a year is over $200,000, you must reduce the dollar limit
(but not below zero) by the amount of cost over $200,000. If
the cost of your section 179 property placed in service during
2001 is $224,000 or more, you cannot carry over the cost that
is more than $224,000.
Example. This year, Jane Ash placed in service machinery
costing $207,000. Because this cost is l$7,000 more than
$200,000, she must reduce her dollar limit to $17,000 ($24,000
- $7,000).
*******NOTE*******
The information contained here is believed to be accurate,
however, National Partitions, its affiliates, its employees,
its agents and any other party associated with National
Partitions, make no warranty or any claim of any kind. This
information must be verified by a CPA before using.