Q-1:

Subject: Section 179 question

Hi Kerry,

 

I am not sure if this is appropriate for me to email you with a tax question.  Please excuse me if it is not.

 

My wife is a realtor and did not have an income this year.  We are planning to file jointly and deduct her expenses from our total income.  Is it possible to also use the section 179 to deduct/depreciate a vehicle we are getting for her business this year if she does not have an income?

 

Regards,

A-1:

I have covered this issue several times on my blog.

Basically, it is very possible that having other kinds of earned income on your joint 1040, such as amounts from your W-2, will make it possible to claim a Section 179 expense on your wife's Schedule C.  You professional tax preparer's tax software should make this calculation automatically.  It is not something that you want to try to compute on your own.

Good luck.  I hope this helped.  Your own personal professional tax advisor can give you more specific numbers for your unique situation.  If you are planning to prepare your wife's real estate Schedule C by yourself, without professional assistance, you are crazy and will pay much more in extra taxes than the amount of fees you will save.

Kerry Kerstetter

Q-2:

Thank you.  I have ask this question to several cpa's and getting conflicting answers including one that used to work for IRS that said "no".  I guess I am still looking for a decent cpa.

A-2:

As I've frequently warned, ex IRS employees often make terrible tax advisors because they are not able to make the mental transition from interpreting the tax code in favor of more money for the government to interpreting things in favor of clients.

As a little more documentation of what I said, here is an excerpt from the current QuickFinder Depreciation Handbook:
 

Strategy: Business taxable income does not have to be generated by the business in which the Section 179 property is used to count toward the business taxable income limit. In fact, the trade or business in which the Section 179 property is used can generate a loss, as long as the taxpayer’s net business taxable income from all sources is positive.

Example: Jon has a sole proprietorship that has a $45,000 loss for 2006 before considering any Section 179 deduction. He also reports $150,000 of wages and $3,000 of Section 1245 depreciation recapture from a partnership interest. He is active in the partnership’s business. Jon’s aggregate business taxable income for the Section 179 taxable income limit is $108,000 ($150,000 plus $3,000 from the partnership minus $45,000 loss from the proprietorship). Jon can claim the full $108,000 Section 179 deduction in 2006 (assuming total qualifying property does not exceed $430,000) for Section 179 property placed in service for his Schedule C activity.

Joint return. If a joint return is filed, the taxable incomes (or loss) of both spouses are aggregated, even though the Section 179 deduction may be related to the activities of only one spouse.

Example: Sue and Bo file a joint return. Sue has Form W-2 income of $125,000 in 2006. Her husband, Bo, reports a $12,000 business loss from his proprietorship; their aggregate trade or business income for claiming a Section 179 deduction by Bo’s proprietorship is $113,000 ($125,000 – $12,000). Bo is entitled to claim up to $108,000 of Section 179 expense (assuming total qualifying property does not exceed $430,000) for eligible asset additions.

Good luck.

Kerry

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/01/2008 12:58:00 PM Send this post: