Tax Guru – Ker$tetter Letter

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Sec 179 for Equipment Leasing

Posted by taxguru on May 1, 2013

Q:

Hi Kerry.
 
I am very impressed by your site and the knowledge presented.  I have a question about 179 deduction:
 
My company is in the process of purchasing used equipment (frozen yogurt machines) to lease to frozen yogurt shops in the area and put in production this calendar year.  Most of the references on the site are for businesses that are purchasing it for their specific business.  Do I get the benefits of $139,000 deduction even though the equipment won’t be used specially for my business?
 
Thanks!
 

A:

Machinery that is leased to another user can possibly be claimed under Section 179 because, while the renter will be using it to prepare the frozen yogurt, your company will be in the business of leasing it.

You didn’t say whether your business is incorporated or not.  This is important because an unincorporated business may only claim the Section 179 deduction if:

1. the term of the lease (including options to renew) is less than 50% of the equipment’s class life
and
2. For the first 12 months after the property is transferred to the lessee, the total business deductions on the property exceed 15% of the property’s rental income.

I hope this helps.

Kerry Kerstetter

 

 

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