Q:

Subject: question on section 179

Hello,

I was reading your explanation of the section 179 rules, and I have the following question, that I hope you can answer for me:

I own a dental practice, that we've invested $500k in this year for a new office facility.  (chairs, equipment, furniture, etc)

I am considering adding a piece of technology to the practice that will cost $97k.  Can I purchase this equipment in calender 2006, and "place it in service" in 2007, and take advantage of the section 179 deduction in 2007?  Or, do I have to wait until January 1, 2007 to purchase it?   Also, if I choose to purchase it this year (2006), what amount can I depreciate it for tax purposes, even though I have already used my section 179 limit for this year?

Your advice and help is much appreciated

A:

These are the very kinds of questions that you need to be going over with your own professional tax advisor, who can properly analyze the multi-year consequences of the asset purchases.

While it is possible to pre-pay for the new equipment in 2006 and not take delivery until 2007 in order to save the Section 179 deduction for 2007, you need to be careful to handle this properly.

For 2005, you are already in jeopardy of being very close to losing all eligibility for Section 179.  As you can see on my Section 179 page, the allowable Section 179 is phased out when the total qualifying assets you acquire in 2006 exceed $430,000.  You didn't really specify if all of the $500,000 you have already spent was for Sec 179 qualifying property; but if it was, you have already been phased out of $70,000 of possible Section 179.  I doubt if your assumption that you have maxed the Sec 179 for 2006 has taken that into consideration.

One of the justifications by our rulers in DC for penalizing businesses that buy that much in new stuff is the fact that, in their subjective but misguided opinion, such businesses will already be entitled to plenty of regular depreciation and won't really need the additional Section 179.  The actual amount of your deprecation deduction will depend on the class lives you use for your new stuff, as well as whether you choose to use accelerated or straight line methods.  Your personal tax pro can give you more specific numbers for your particular situation.

Good luck.  I hope this helps.

Kerry Kerstetter

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 9/20/2006 12:25:00 PM Send this post: