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.
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.
Actually – that's where bonus depreciation takes over for new purchases over $2M
See calculation below. How do they come up with $94,500 in savings from a $350,000 purchase?
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.
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.
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!
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.
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?
@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?
Just want to point out that Sec. 179 only applies to depreciable assets. So, if a question says, “X bought Land costing $200,000. What’s the Sec. 179 deduction?” 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. Don’t be like me, lol.
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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