Section 179 Deduction

[CADBru]

One of the many qualifiers of a Section 179 deduction is it may not exceede the amount of income earned the same year and the deduction % against the expenditure is based on the the tax payers current tax bracket. My flowthrough LLC annual earnings consist of $900,000.00 (Patent Royalties) taxed at the Capital Gains Rate and $140,000.00 as an ordinary earned income Salary. The LLC is considering a Section 179 qualified vehicle (7000lb +) purchase for exclusive business use in the same year for $150,000.00. Question: What tax bracket is relied upon in determining the deduction benefit?  Capital Gains Bracket? or Ordinary income? or a combination thereof?

[M-MTax]

Business income is required to take the Sec 179 deduction......portfolio income like dividends and interest don't count and neither does passive income like rental income or capital gains.....it must be earned/active income and you can only take Sec 179 up to that amount.

[CADBru]

Great point and perhaps I should have clarified that the LLC had $140,000 of business income which flowed down to me as salary, so is that the respective tax bracket used in determining the purchase benefit % amount? (ie. 22% MFJ) in determining the net financial benefit to the LLC of the $150,000 vehicle purchase, if any. (140k x .22 = 30,800?)

[M-MTax]

tax bracket is the wrong term......you have $140k in earned income which the Sec 179 deduction can offset.

[CADBru]

Thank you and in the literal sense would agree however in removing a bean counter hat and stepping into the tax payer shoes, the llc s' $140k earned income - set off by the Section 179 deduction, at best (in the example cited) can only offer a maximum net benefit to the tax payer of a 22% (MFJ) savings far from the claim of 37% promoted by many auto dealers so buyers beware. In many instances the $14k example cited may yield nothing more than a tax bracket reduction at best and in many instances may not even afford that, depending where one ultimately lies within the tax bracket. In short, exercise caution before squandering a non yielding deduction because it appears there are no 2nd chances with a Section 179 deduction once taken. 

[Mike9241]

are you sure the ads don't say up to 37% which would require taxable income for a married couple of over $600,000 of ordinary income  ($500,000 if single).

anyway, you do have options. nothing requires you to take the maximum section 179 deduction. you can take $0. you also have the option of taking 50% or 100% bonus or opt out completely or you can mix the two to arrive at a deduction (not more than the max) of your choosing.

with 179 you have to recapture it if before the end of the useful life use drops below 50% there are some twists in this in years after the asset is acquired. 

[CADBru]

Thank you for the valuable discussion which teaches:

1. Purchase of an exclusive use 6,000+ lb GVW vehicle to

2. Receive a 100% 1st year deduction and 37% tax reduction is

3. Subject to an equal or more amount of earned income and

4. A minimum $622,051.00 (MFJ) purchase/income/179 deduction recipe is necessary. The lottery seems less illusive. Buyer beware.