Tax Guru – Ker$tetter Letter

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Archive for March 11th, 2009

Sec. 179 Phase-Out

Posted by taxguru on March 11, 2009

Q:

I do not understand the phase out concept for Sec. 179 accelerated depreciation. For 2009 for example, the maximum deduction is $250,000, so what does it mean to have higher phase outs? You would never claim more than $250,000, so how would it ever phase out?

A:

The expensing election under Section 179 was always intended to be for smaller businesses. To make sure that larger businesses weren’t able to benefit from it, our rulers in DC added the phase-out thresholds based on the dollar amounts of equipment that were acquired during the year. The underlying concept is that, any company large enough to be able to afford those large amounts of new equipment purchases didn’t need the additional tax help from Section 179 because their normal deprecation deductions would be large enough.

Whether this makes sense or not isn’t the key. It’s how our rulers have decided to limit the application of Section 179.

I hope this clears up any confusion you have.

Kerry Kerstetter

Follow-Up:

I get it now. By making sense, I did not mean in the ultimate sense, but in the limited sense of whether there was even an arguable policy rationale. Without one, I would not be sure whether the explanation was correct. Now I get it.

Business Plan Pro

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Taxing tax critics?

Posted by taxguru on March 11, 2009

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