Q:

Subject: SECTION 179 QUESTION

Hi Kerry,

 

I read your section recently and was wondering if you could answer a question for me? I purchased a milling machine new in 2006 for 72,000. rigging and taxes pushed the expenditure to 78,000. I would like to sell the machine in 2007,probably in march. Under section 179, How much can I depreciate the machine? I will probably sell the machine for 60,000. Things just didn’t quite work out.

 

Hopefully this makes sense, Thanks for your help.

 

Cheers,

A:

How much you can legally claim for Section 179 on your 2006 1040 and how much you should claim may very well be two completely different numbers.  You should work out different scenarios with your personal professional tax advisor as s/he works on your 2006 tax returns. 

Basically, any amount you claim in Section 179 and normal depreciation on the machine in excess of $18,000 will end up being taxable recapture income on your 2007 tax return.  This may not necessarily be a bad thing because it could very easily be the case that you could save more on your 2006 taxes by claiming a lot of Section 179 than the taxes you will have to repay on your 2007 1040, in addition to the time value of the one year difference in tax dates. 

I have no way of knowing if that would be the case because it depends on so many other factors that only your professional tax preparer can know about.  That is the kind of “what-if” analysis you and your professional tax advisor need to do before completing your 2006 1040.

Good luck.

Kerry Kerstetter

Follow-Up:

Hi Kerry,

 

Thank you for the explanation, I appreciate your input very much.

 

Best Wishes,