Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

YEAR-END PLANNING: HURRY UP AND ADD FIXED ASSETS?

December 13, 2007

The tax law has always required taxpayers to expense long-lived assets over multiple years through depreciation deductions. These rules have had an important exception, Section 179, which lets you expense in the current year assets that would otherwise need to be depreciated. Congress has expanded the size and scope of Section 179 in recent years, making at a potential year-end planning too.

Taxpayers are allowed to deduct up to $125,000 in business assets that would otherwise have to be depreciated or amortized. If you have a need for such assets, that means you can knock up to $125,000 off your 2007 business income by getting the assets this year.

Before you start writing checks, though, keep in mind some important limitations:

- The assets have to be "placed in service" before the end of the year to qualify; just writing a check for an asset to be delivered next year doesn't work.

- Assets used in a real property rental business don't qualify.

- The deduction phases out dollar-for-dollar as qualifying assets purchased during the year exceed $500,000.

- You have to have "active" taxable income to use the deduction. This sometimes trips up retired taxpayers who are passive investors in a pass-through entity -- a partnership or S corporation -- , as they may not have enough "active" income to use the deduction.

- The $125,000 limit applies per taxpayer. That means a pass-through entity with many owners needs to be sure it doesn't pass-through Section 179 deductions that its owners can't use.

Even with these limits, there are many taxpayers who will find the Section 179 deduction very handy between now and December 31. Just ask any SUV dealer.

Visit taxupdateblog.com every day through December 31 for a new year-end planning idea. Collect them all!

Tags: Section 179.year-end tax planning.

 • 2007 Year-end Planning       Bookmark: del.icio.us • Digg • reddit