Section 179 Business Income Limit

[lschmied001]

When calculating the Section 179 Business Limit on Form 4562, Turbo Tax is not including gain from Form 4797, Part III (Section 1245).  The assets sold were used in an active trade or business reported on Schedule C.  Shouldn't the gain on these assets be included?

[MarilynG1]

The income from the gain on Form 4797, Sale of Business Property, does not get added back to Form 4562. It will be added back to your Schedule C as other income.

There are two situations when you have to recapture Section 179 depreciation. 1) Sale: It is figured on Part III and goes to 1040 Line 14. 2) Listed property usage drops below 50% and is no longer categorized as business property. This would be Part IV and go back to Schedule C which would then increase your limitation on Line 11.

Click this link for more info on Section 179 Business Limit.

@lschmied001 

[lschmied001]

@MarilynG1 It is not going to Schedule C.  It goes from Form 4797 to Schedule 1, Part I, Line 4 so it's not being picked up in the Business Income Limitation.

[Mike9241]

the 1245 gain does not flow to schedule C but to schedule 1 line 4 from the 4797.

this is from IRS reg 1.179-2(c) 

the aggregate amount of taxable income (ie business income limitation) derived from the active conduct by an individual .... of any trade or business is computed by aggregating the net income (or loss) from all of the trades or businesses actively conducted by the individual .................during the taxable year. Items of income that are derived from the active conduct of a trade or business include section 1231 gains (or losses) from the trade or business and interest from working capital of the trade or business. Taxable income derived from the active conduct of a trade or business is computed without regard to the deduction allowable under section 179, any section 164(f) deduction, any net operating loss carryback or carryforward, and deductions suspended under any section of the Code. See paragraph (c)(6) of this section for rules on determining whether a taxpayer is engaged in the active conduct of a trade or business for this purpose

notice that 1231 gains are included but not 1245. also note that for taxpayers subject to self-employment tax this gain is exempt. I would therefore conclude 1245 gain is not business income.