Q:

Subject: Section 179

Hello Kerry,

Thank you for your informative insight onto this project.

I do have one question for you.  Just as the limit has been adjusted for inflation as it has increased from $100,000 to $128,000, the phase out of Section 179 has been adjusted by the same percentage.  So it would seem to me that the phase out should have increased by 28% above the original $400,000.  If that is correct, the phase out should occur after $512,000 and not $510,000.  Would that not be correct?

Thanks,

A:

The Section 179 did not jump 28% at any one time.  It took several years to reach the current level of $128,000 in annual increases, plus a new law that was passed last year that increased the base before COLAs from $100,000 to $125,000.  There was never a COLA of 28% because that calculation is based on the annual inflation rate, which hasn't been anywhere close to 28% since the days of Jimmy Carter.

You can see the recent historical and projected future Section 179 limits on my website.  
 
At the bottom of the page, check out the historical phase-out points.

As with almost all of the annual inflation adjustments in the tax code, they are rounded to the nearest $1,000 for the Section 179 expensing limit, and the nearest $10,000 for the beginning of the phase-out.  This is why, when looked at over a five year period, as you are doing here, the cumulative percentage adjustments can be slightly different.

I hope this helps you better understand how the maximum Section 179 grew a cumulative 28% from $100,000 in 2003 to the $128,000 we have now in 2008, while the phase-out threshold only grew 27.5% over that same time period.  It was the annual rounding.

Kerry Kerstetter

 
Follow-Up:

Hi Kerry,

 

I realize that the changes have occurred over a number of years, but I was unaware that the phase-out is rounded to the nearest $10,000.  That would explain why the limit is now $510,000 and not $512,000.  

 

Thanks for the clarification.

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/05/2008 02:01:00 PM Send this post: