Q:

Subject: Section 179

I assume you get hundred of random dumb emails so I would like to apologize if this is just another one.  To minimize the inconvenience I have attempted to keep my questions short.

I am trying to understand the 179 rules as it pertains to a business opportunity which is being promoted in the boating world.

1. My question is can you deduct the boat under 179 if used in a S or LLC structure. The purpose would be for a sailing charter business.

2 The vessel is currently in a S corp, and for sale at 550K.  Would it make sense to purchase the S Corp instead of a asset purchase and book the asset (the Boat) at 400K and the Goodwill at 150K. Thus meeting the 430,000 limitation on 179.

3. For the purpose of building basis, does making monthly payments into the corporation and have the corporation pay the finance company allow me to build basis as paid in capital.

4. Does signing for the note personal negate the 179 because of limitations on converted assets or does it act as paid in capital , once the boat is listed as a corporate asset?

Thank you for your time.

A:

You most definitely need to be discussing all of these points with your own personal professional tax advisor.  As I have to continuously warn people, this is not a place for do it yourselfers, especially when you get into S corps and dollar figures that large.  Without competent professional help, you are pretty much guaranteed to screw things up and get yourself into big trouble with IRS, which is currently undertaking a special examination program of S corps and their shareholders.

Some points in your email that you will need to discuss with your personal tax pro include the following.

1.  Purchasing assets to be leased, such as expensive boats, is very often done through the use of an LLC or S corp.  How much actual deduction the shareholders or members will receive depends on too many things (many of which are covered on my website) to be able to give anything close to a "one size fits all" answer. 

2.  Section 179 can only be claimed on newly acquired assets that are being placed into service.  If you were to buy the corp stock, no new Sec. 179 could be claimed for assets that it already owned.   If you were to set up a new LLC or S corp and it purchased the boat from the previous owner, a new Sec. 179 deduction is possible.

3 & 4.  Shareholder basis in S corp stock is far too complicated for me to detail here.  However, you are correct that the more money you pay into your corp capital account, the higher your personal basis would be.

Kerry Kerstetter

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/14/2006 12:45:00 PM Send this post: