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| p.1 #5 · Tax question - Section 179 deduction |
First, this is not to be considered legal advice or tax advice. It is only an attempt to explain my understanding in terms that may make it easier for you to make sense of something like official IRS forms and publications.
On its face the 179 deduction is simple. You get to deduct up to $500,000 of business equipment you buy in 2012.
Then things get more complicated:
1. Not all property qualifies, but what doesnít involves real property and SUVs and the like. Tangible personal property and software used in the business does qualify (except certain vehicles), so if you leave out real estate, buildings and vehicles you can forget this complication.
2. If you bought more than $ 2 million of equipment you have further complications (and your own accounting staff to mess with this complication).
3. Your 179 deduction is limited to your taxable income. However there is a special way to compute taxable income for this purpose. If you hit this complication you can work your way through the forms if you are accounting oriented. Otherwise best get an accountant or use tax software that will compute the limit for you.
The 179 deduction is not required. You elect to take it. You can elect to take the entire cost of the qualifying property or just a part. You can elect which property or properties to take it on and what dollar amount of a particular property to take.
When you take the 179 deduction for a property, or a portion of it, what you have done is reduce the value of the property for depreciation purposes. So, if you take the 179 deduction for the entire value of a camera there is no value to depreciate. If you take the 179 deduction for half its value you still have half its value you can depreciate (based on a starting cost for the property of half its cost).
If you elect to take a 179 deduction that is in excess of the net income limitation (#3 above) the part you canít take this year carries over as a 179 deduction eligible to be taken in future years (unlimited carryover).
Hope this helps.