I continue to receive a lot of questions about the use of the Section 179 expensing election, such as this one:

Question:

I’ve read that taking this deduction cannot cause your business to have a loss, but If I have a business loss before taking this deduction, am I allowed to take it?

Thank you in advance,

My answer:

It is true that the Section 179 cannot be used to reduce taxable income below zero. However, this isn’t always based on the business income alone.

For corporations (Form 1120), it is pretty straight forward. The Sec. 179 deduction can only be as high as needed to zero out the taxable income. If there’s already a break-even or net loss, no current 179 is allowed and must be carried over (on Form 4562) to the next tax year.

For Schedule C sole proprietorships, it is actually possible to use Sec. 179 to create or increase a large net loss if there are other sources of income (W-2s, etc) that result in a positive taxable income before considering the Sec. 179 deduction.

I hope this helps. I’m sure your personal tax advisor can give you more specifics for your particular situation.

Kerry Kerstetter