Section 179 Deductions

[bs0773]

I bought a large truck for my business (>13000) at the end of 2022 and put in service at the start of 2023.  It's a 100,000 truck.  I only had 25,000 in profit before taking my Section 179 deductions.  I also have two trailers worth 22K that I'm planning to section 179 this year.  My question is:

My wife runs a successful business and has substantial profit.  Will I benefit from depreciating the full amount of my truck in section 179 if I already have 22K in deductions bringing my taxable income down to 3K.  Will the truck reduce our overall income (including my wife's)?

[AmyC]

No, your expenses will not reduce your wife's income. You can't deduct more than you made. Your sec 179 is limited to business income. You can end up having to amend or recapture if things don't go as you hope or you sell the property.   From Pub 946:

Carryover of disallowed deduction.

You can carry over for an unlimited number of years the cost of any qualified section 179 real property that you placed in service in tax years beginning after 2015, and that you elected to expense, but were unable to deduct because of the business income limitation. This disallowed deduction amount is shown on line 13 of Form 4562. You use the amount you carry over to determine your section 179 deduction in the next year. Enter that amount on line 10 of your Form 4562 for the next year.

If costs from more than 1 year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first.

If your wife also has sec 179 deductions, you will need to coordinate your amounts to not exceed the totals allowed. For more about sec 179, see Pub 946

[bs0773]

I finally found the area to input Section 179 items for my business.  My wife does not have Section 179 items.  Turbo Tax shows 0 dollars for carryover and it looks like it has reduced our overall income (my wife's) by the amount that was not covered by my income.  I had 41K income for this business with 90K of deductions.

This seems to be different than you state.  Just wondering if anyone else will chime in.  Should I expect to have to amend anything and re-send?

[AmyC]

The difference is between Form 4562, 4562 instructions, and Pub 946. Pub 946 is very clear in the limitation. Form 4562 uses all taxable income on the return as you and your spouse are one tax entity and states that you need to use Pub 946 to determine the entry. Therefore, form 4562 will allow you to claim it all if no changes are made. Pub 946 is the authority.

About Form 4562, Depreciation and Amortization line 11 states: 

Line 11

The total cost you can deduct is limited to your taxable income from the active conduct of a trade or business during the year. You are considered to actively conduct a trade or business only if you meaningfully participate in its management or operations. A mere passive investor is not considered to actively conduct a trade or business.

Note.

If you have to apply another Code section that has a limitation based on taxable income, see Pub. 946 for rules on how to apply the business income limitation for the section 179 expense deduction.

Individuals.

Enter the smaller of line 5 or the total taxable income from any trade or business you actively conducted, computed without regard to any section 179 expense deduction, the deduction for one-half of self-employment taxes under section 164(f), or any net operating loss deduction. Also, include all wages, salaries, tips, and other compensation you earned as an employee (from Form 1040, line 1). Do not reduce this amount by unreimbursed employee business expenses. If you are married filing a joint return, combine the total taxable incomes for you and your spouse.

About Publication 946, How to Depreciate Property states: 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

Ultimately, it is your tax return and it sounds like you have filed the return. Use the equipment and grow a fabulous business so there are no worries in the future about the write-off. 

[AmeliesUncle]

Yes, Section 179 from your business can offset other "earned" income on the same tax return, including your spouse's business income.   On a personal tax return (Form 1040), the 'business income limit' includes all businesses and all W-2s of both spouses.

However, you might not want to do that.  Yes, it is saving you income tax now.  But if you use a different depreciation method (less depreciation this year) so you have depreciation in future years, the future year depreciation can potentially reduce that year's income tax AND self-employment tax (assuming your business is profitable in the future year)..