I purchased a new home including 10 acres of timber land in 2022. I also purchased a side by side to use in my timber business. Can I depreciate the entire cost of this as equipment using section 179? No income has been generated yet.

[Cynthiad66]

Yes, Section 179 allows you to deduct the entire cost (subject to certain limitations) of an asset in the year you acquire and start using it for business.

If you were actively engaged in your trade or business but didn't receive income, then you should file and claim your expenses.

Section 179 Expense Deduction

It's a dry name for a deduction (taken from a line in the Internal Revenue Code) but it allows you to deduct the entire cost (subject to certain limitations) of an asset in the year you acquire and start using it for business.

Here are the rules and limitations for 2022:

• The asset must be tangible personal property, including software (not real estate).
• It must be used in a trade or business (property used in a rental activity is generally not eligible).
• You must take the deduction in the year you start using the asset.
• The decision to use Section 179 must be made in the year the asset is put to use for business.
• The deduction cannot be more than your earned income (net business income and wages) for the year.

For 2022, the maximum Section 179 deduction is $1,080,000. If your total acquisitions are greater than $2,700,000 the maximum deduction begins to be phased out.

If the business is an S corporation, partnership or multi-member LLC, it cannot pass the Section 179 deduction on to shareholders, partners or members unless the business has income. The individual must also have earned income to take the deduction.

NOTE: TurboTax walks you through the Section 179 deduction for applicable assets, and handles the calculations, too.

Use this link Depreciation of a Business Asset for more information.

What is a Section 179 Deduction is another link with additional information to assist you.

[leeloo]

You can't take a Section 179 deduction in 2022 with no income. It will carry forward.

Business Income Limit

The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business.

Any cost not deductible in 1 year under section 179 because of this limit can be carried to the next year.

https://www.irs.gov/publications/p946

[kwebergri]

Thank you for your response. Are you familiar with the Timber business? I know I can’t depreciate land but I’m wondering if I need to somehow separate and report the cost of the land that the timber is on to be able to later deduct the cost from any income in the future. 

[AliciaP1]

Yes, you need to separate the business land (timber) from your personal property (home & land).  The appraisal performed for your purchase should have an opinion of the site value.  You can use this number and some form of measurement (square footage or acreage) to compute the value of the business land.

@kwebergri 

[kwebergri]

Thank you AliciaP1,

So what do I do with that value once I compute it? Do I need to report it on the return somewhere or just keep it for my records?

Thanks again

[RobertB4444]

You can enter it into TurboTax in the depreciation schedule as a 'non-depreciable'.  It won't effect your return at all but it will be carried forward through TurboTax as the cost basis for your land so that when you sell it in the future the basis will already be there.

@kwebergri