Category: Questions about Income
Section 179 Deduction Limitations
Taking the Section 179 election allows the taxpayer to elect to deduct the total cost of the property purchased in lieu of depreciating the property over the life value.
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. If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.
The total amount you can elect to deduct under section 179 for most property placed in service in 2014 generally cannot be more than $500,000 ($535,000 for qualified enterprise zone property). This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2,000,000. 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 $500,000. You do not have to claim the full $500,000. For examples of dollar limits, please refer to pages 18-20 of Publication 946.
Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000.
The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operation of the trade or business.
In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Net income or loss from a trade or business includes the following items:
- Section 1231 gains (or losses)
- Interest from working capital of your trade or business
- Wages, salaries tips, or other pay earned as an employee and reported on line 7 of your 1040. (If married filing joint return, you must include your spouse’s income as well).
In addition, figure taxable income without regard to:
- Section 179 deduction
- Self-employment tax deduction
- Any net operating loss carryback or carryforward
- Any unreimbursed employee business expenses