Q:

I appreciate your web site. I am trying to complete a homework assignment and have found your web site a great help for my income tax class.

This is my problem,

Lori, who is single, purchased a copier (5-yr class property) for $31,000 and furniture (7-yr class property) for $42,000 on May 20, 2003. Lori expects the taxable income derived from her business (without regard to the amount expensed under sec 179 to be about $100,000. Lori wants to elect immediate sec 179 expensing, but she doesn't know which asset she should expense under sec 179.

a.) determine Lori's total deduction if the sec 179 expense is taken with respect to the copier.

b.) determine Lori's total deduction if the sec 179 expense is taken with respect to the furniture.

c.) What is your advice to Lori?

This assumes that sec 179 is at $25,000 not the increased $100,000.

According to your site, there is a limit of one maximum. Does that mean Lori can claim either the copier or the furniture and not both even if the cost for both were below the maximum?

I would appreciate your help if you have time.

Thanks,

As a rule, I don't answer homework questions.  However, you mentioned something that has me concerned that others may also be misunderstanding the rules for claiming the Section 179 expensing deduction.

I'm not sure where you are getting the idea that it can only be claimed on one asset per year per tax return.  That is not the case at all.  In fact, I often prepare tax returns where the Section 179 section of Form 4562 says "See Attached Schedule" and several different items are listed on a backup schedule.

Whatever the limit is for the year ($25,000 or $100,000), it can be used to cover the cost of dozens of individual assets for the year.

It is also not an "all or nothing" application.  As an election, you have the right to claim nothing under Section 179 for the year, or perhaps only part of the total that can potentially be claimed. 

You also have the option of dividing the allowable deduction among the different assets acquired during the year.  For example, you could claim $10,000 against the copier and $15,000 against the furniture.  You would then depreciate the remaining cost basis of each asset over its useful life. 

Normally, if maximum deductions are the goal, when one asset has a longer class life than another (such as seven vs. five years), it makes more sense to use Sec. 179 on the asset with the longer life.

I hope this clears things up for you.  Good luck in your class.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 10/31/2004 08:41:00 PM Send this post: