REG – Section 179

CPA Exam Forum The Forum REG Review REG – Section 179

This topic contains 11 replies, has 4 voices, and was last updated by  Soproudofmyself 4 years, 6 months ago.

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• #165670

Soproudofmyself
Participant

Help! I’m trying to understand how section 179 works for businesses.

I’m getting the deductions all confused, is the 2011 deduction maximum = 25,000 (per machiney or equipment)? and then your allowed 50% of the remaining balance as a deduction as well? plus depreciation on the equipment?

that is of course, if we are getting tested on 2011 laws in the first 2 quarters of the year.

Thanks guys!

#322164

CPAMan
Participant

You can deduct up to \$500,000, but once your purchases exceed \$2,000,000, you lose \$1 on the dollar. So, let’s say your purchases are \$2,001,000. That means I can deduct only \$499,000.

#322165

Actually – that’s where bonus depreciation takes over for new purchases over \$2M

#322166

Soproudofmyself
Participant

Thanks guys!

See calculation below. How do they come up with \$94,500 in savings from a \$350,000 purchase?

http://www.section179.org/section_179_calculator.html

Using a \$350,000 equipment cost for a sample calculation shows how taking advantage of the Section 179 Deduction can significantly lower the true cost of the equipment purchased or leased. In the example, \$350,000 in equipment purchased has a true cost of \$255,500. That’s \$94,500 added to your bottom line, which is substantial.

#322167

They are taking into account the amount it saves you on your taxes.

If I am a business owner and in the 25% bracket – every dollar I spend actually costs me 75 cents.

#322168

Soproudofmyself
Participant

Thanks! I wasn’t fully grasping this while at work earlier. I get it now. There have been so many changes to this tax relief!

#322169

CPAMan
Participant

Section 179 seems to have a lot of changes over the years, so I wouldn’t expect anything specific on this on the actual exam due to the fact that the AICPA would have to keep changing the questions constantly. I was practicing with the Gleim software last night and encountered a very good CPA adapted question on this. It said, “assuming the Sec 179 limit is….” So, in that question, they actually gave a limit for you to use. I can post the exact question when I get home tonight. If you were to get a Sec 179 question on the exam, it’ll probably be something like that.

#322170

I would know the 2011 amount (\$500k/\$2M) and be good with that going into the exam. If they give you the amount, then roll with that.

Pop quiz: Do you know the major difference between the 179 and the special bonus depreciation?

#322171

sonia2010
Member

@jeff – The major difference between the two is Sec 179 applies to both new and used equipment whereas special bonus depreciation applies to only new equipment.

Am I right?

#322172

Sonia: Ding Ding Ding đź™‚

#322173

CPAMan
Participant

Just want to point out that Sec. 179 only applies to depreciable assets. So, if a question says, â€śX bought Land costing \$200,000. Whatâ€™s the Sec. 179 deduction?â€ť The answer is 0 because Land is always capitalized and never depreciated or expensed. I got a Gleim question on that the other day and was gullible enough to fall for their tricks. Donâ€™t be like me, lol.

#322174

Soproudofmyself
Participant

these are all very good points guys! =)

I’m going to post another question that I dont fully grasp…my head hurts from thinking about it so much. Maybe I’m over thinking it! I’ll start a new conversation!

Good point CPAMan! I fall for those tricks all the time!

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