Q:

Subject: Sect 179 Question

Kerry,
I love your site. Very informative. I had another question on Sect 179. I am looking at purchasing an automation piece of equipment for my pharmacy. While I need the asset now, I don't need the Sect 179 deduction until 2007. The company has offered to install now and rent it to me until 2007 where I can convert it to a capital lease. Would this allow me to take the Section 179 deduction in 2007?

Thanks,

A:

As always, this is the kind of decision process that you should be working on with your own professional tax advisor.

However, as an illustrative example, I can address your situation in general.

First is the lease then buy scenario. That would not fly with IRS because the Sec. 179 is only available for the first year the asset is acquired and placed into service. In your case, you would be placing it into service in 2006 and buying it in 2007, making it eligible for the Sec. 179 in neither year.

Next is your assumption that you don't need to claim it in 2006. You are most likely being short-sighted with this conclusion.

If you already have plenty of deductions, and are thus going to show a low taxable income for 2006, a large Sec. 179 deduction wouldn't even be possible due to the taxable income limitations. However, if you were to buy the asset and start using it in 2006, you could claim the full maximum Sec. 179 on your 2006 4562. The excess above the deductible amount would be automatically carried over to your 2007 tax return, where it would be compared against your 2007 taxable income. It sounds as if this is what you are really after, so that might work out best for you without the need to play any short term leasing games.

Your personal tax pro should be able to run some pro-forma tax returns for 2006 and 2007 to show you how this scenario would work for you.

Good luck. I hope this helps.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/19/2006 12:32:00 PM Send this post: