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mrduvall
Level 2

Section 179 limitation and K1

1065- Can an individual's K-1 Part III line 12 Section 179 deduction be greater than their individual Ordinary Business Income line 1? If not, should I go back into and reduce the 179 deduction to match line 1 or will that limitation be completed when the individual files their 1040?

2 Replies
DavidS127
Expert Alumni

Section 179 limitation and K1

Yes, your Section 179 deduction can be greater than your line 1 income, but the Section 179 deduction in the current year is limited to the business income.  The Section 179 deduction not used in this year is carried forward to next year.  So, if you expect to have business income next year and don't have need a business loss in the current year (and won't be helped by generating net operating losses), taking the full amount as Section 179 and carrying the rest forward to future years may make sense.

 

Whether you want to reduce the Section 179 deduction in the current year depends on your circumstances.  If you reduce the amount of Section 179 in the current year, the amount of the asset not taken as a Section 179 expense will be depreciated starting this year.

 

But, importantly, to the extent you do not choose Section 179 expense for an asset, if the asset is eligible you can use the "special depreciation" to depreciate 100% of the remaining balance in the first year.  And, unlike the Section 179 expense, that special depreciation can be taken even if it "pushes" the business into a loss.  If you can't "use" all that business loss and have a "net operating loss" (NOL) on your tax return, it can be carried forward to future years (and now under the CARES Act "back to prior years before forward").

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mrduvall
Level 2

Section 179 limitation and K1

Very helpful David.  Thank you very much for the response.  My situation is exampled as follows. 

Partnership with 50/25/25 split.  I am 50% member.   Ordinary income total of 100, so my ordinary K1 income is 50 (box 1).  Section 179 total (of which is 100% special allocated to me) is 60 so box 12 on K1 shows -10.   Two additional questions-

 

A. We expect income in 2020 (as we had in 2019) and the 179 asset is most likely not going to meet the 50% business use mark in 2020 so there will be recapture.   Does this factor swing whether I should use 179 vs. special 100% depreciation.  Asset is a 6,000#+ truck.  

 

B.  On my 2019 1040, K1 box 1 will will be imported as well as K1 box 12 (limited to box 1) correct?

 

Much appreciated.  

 

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