Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Section 179 Confusion

Posted by taxguru on October 20, 2003

The Section 179 expensing election really isn’t that complicated; but it still confuses people, especially those who want to save a few bucks and try to navigate the perilous waters of the tax system on their own, as in this recent email exchange.

Question Received:

Last year I purchased a truck and tractor for my business. I used Section 179 deduction on the truck ($35k) assuming I would use the deduction on the tractor this coming year. But I am reading that these deductions only apply to purchases on that year. Can I still use section 179 on the tractor that I purchased last year?

My Reply:

The Section 179 expensing election has always been available only for assets purchased and placed into service during the tax year in question. It has never been available for assets acquired in a previous year.

What many people do is stagger their asset purchases by year, so as to be able to expense each asset. For example, if you had purchased the tractor in one year and the truck in the next year, you could claim the Sec. 179 for each.

Another common strategy is to buy one of the assets in your personal name so you can Sec. 179 it on your 1040; and buy the other one through a C corp, so it can expense it on its 1120. That’s how I often advise clients who want to buy more than the year’s Sec. 179 maximum in one year.

Not to sound too self-serving, but this is a very basic concept that wouldn’t have been a surprise if you had consulted with a tax pro before you bought those things. The money you would have spent for knowledgeable advice would have been more than offset by tax savings from structuring things appropriately.

Good luck.

Kerry Kerstetter

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