Taxing Definitions

Definitions — The great depreciation

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Section 179 depreciation, a tax provision that currently allows taxpayers to write-off up to $500,000 for 2016 ($510,000 for 2017), has been around long enough that you may think you’re very familiar with the rules. Here’s a quiz to check your knowledge.

1.

In what year was section 179 added to the internal revenue code?

 

2.

What are the three major items limiting the total amount of Section 179 that can be deducted in a specific year?

 

 

3.

The US Treasury released a working paper in October 2016 that analyzed the business use of section 179 from 2002-2014. For 2008 section 179 use by C corporations, which industry do you think was the largest user?

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4.

On average, how much of the allowable section 179 deduction do you think companies use?

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Note: This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

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1958. Section 204 of the Small Business Tax Revision Act of 1958 added a new section 179 to the code.

The dollar limitation. The maximum per-year deduction is limited under section 179(b)(1).

The base maximum threshold. Under section 179(b)(2), the dollar limitation is reduced when the cost of section 179 property placed in service during the taxable year exceeds the statutory threshold. The threshold is currently indexed to inflation, and is $2,010,000 for tax year 2016 and $2,030,000 for tax year 2017.

The income limitation. Section 179(b)(3) provides that the section 179 deduction for any taxable year may not exceed aggregate income from the active conduct of trade or business for that year. The amount of the deduction not allowed for any year because of this limitation can be carried over to the next year.

Right answer!

Data on usage during 2008 shows that the construction industry was the largest user of section 179 at 16%. Manufacturing was second at 13%, and agriculture, forestry, fishing, and hunting was third at 12%.

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Right answer!

Over the 2002-2014 period, corporations, pass-through entities, and individual filers tended to use Section 179 expensing in the 60-80% range, both in terms of the numbers of businesses claiming the deductions and for the deduction amounts claimed relative to total allowed investment amounts. The Section 179 take-up percentage – both for the number of firms with allowed investment and for the dollar amount of investment – generally persisted around 75-80%.

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