Q-1:

Subject: 179 Question

Read the blog page and responses concerning 179.  Searched web can't find this specific answer:

 

LLC is formed with 2 members.  The LLC is dependent on a machine to generate income.  Member #1 personally purchases a piece of qualifying equipment for $90,000.  The intention is to get the machine into the LLC for liability reasons. Member #1 wants to utilize the full 179 deduction against other personal income rather than a 7 year depreciation period.

 

How can member #1 effective get the 179 deduction to offset other personal income (which far exceeds the cost of the machine) with this personal income having a federal tax liability of about $66,000 for the year.  The logic is that with the 179 deduction of $90,000 about 30% or $27,000 could be deducted from the total tax bill of $66,000.  Not to get hung up on the numbers or percentages with the main thrust being to take the full deduction.  Thus, for example, the machine is ultimately purchased for $90,000 - 27,000 = $63,000 net cost after taxes.  Again, wanting to get the machine into the LLC for business/liability reasons later during the tax year 2006.

 

My CPA is a good guy and very knowledgeable.  Any hints/info I could steer his way when I approach him with this would be appreciated by both of us.

A-1:

LLCs and partnerships don't have to divide their income and expenses equally among the partners/members.  It is very common to have different percentage allocations for each one.  Usually, it is based on the amount of capital each person has invested; but there are other ways in which to specially allocate income and expenses among the members.  As long as it makes economic sense, IRS will accept it.

In your case, if you are the only one contributing the machine to the LLC, it would make sense to allocate its cost recovery to your capital account via your K-1, as long as that is acceptable to the other members.  Your tax pro should be able to program his tax program to do this.  I have done very similar allocations on 1065s for decades.

Good luck.

Kerry Kerstetter

Q-2:

Thanks for the quick answer.  I understand what you are indicating but specifically, can the 179 deduction be taken by the one partner and offset his other personal income.

A-2:

The Sec. 179 can be allocated to a specific partner's K-1.

Whether you can actually use it all on your 1040 will depend on the level of earned income you are reporting on the 1040.

Kerry Kerstetter

Follow-up:

Thanks again.  I appreciate your dedication to people and their questions!

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/17/2005 12:53:00 PM Send this post: