[k1zuna]

If you scroll down to the bottom of the solution page, Becker says that: “Section 179 deduction allowed in Year 1 = 0; Section 179 deduction allowed in Year 2 = $25,000”

My question: Didn’t we already deduct the section 179 $25,000 on the “combined property” in year 1? So how come Becker says “Section 179 deduction allowed in Year 1 = 0”?

Sorry I can’t post the entire fact pattern since it’s too long and there’s no copy and paste function… Can any Becker students help me on this? Thanks.

FAR - Passed
AUD - Passed
BEC - Passed
REG - 8/22/2013

[mangos]

So in Year 1 you had a net operating loss.

You can't take S179 deductions in the year you had a loss — so you carry it forward indefinitely to a future period where you can use it (which happens to be year 2).

Hope that makes sense, and I'm glad I'm not the only one struggling through R3! Hah.

FAR (5/07/13): 96

[k1zuna]

Thanks Mangos. I understand what you are saying, but in the solution for year 1, they did reduce one of the assets by the section 179 $25,000 amount:

“MACRS Basis = $35,000: The combine cost $60,000. The Nortons elected $25,000 of Section 179 depreciation (a basis reduction) for this asset, so the MACRS basis is $35,000 [$60,000 – $25,000 = $35,000].

Year 1 MACRS Depreciation = $3,749: To calculate the MACRS expense for Year 1, simply multiply the MACRS basis ($35,000) by the applicable MACRS factor (10.71%) from the 7-year property half-year convention table provided in the Resource tab [$35,000 * .1071 = $3,749].”

I don't understand why they are doing this, and then end up saying you can't deduct section 179 loss in year 1, since they clearly did?

FAR - Passed
AUD - Passed
BEC - Passed
REG - 8/22/2013

[mangos]

You can't deduct the 179 DEDUCTION in a year of loss. It still reduces the basis of the asset.

Remember, you can carry forward the deduction indefinitely so eventually you'll realize the tax benefit.

FAR (5/07/13): 96

[mangos]

I really hate tax.

FAR (5/07/13): 96

[mangos]

This is straight from my Business Taxation textbook:

“Furthermore, any amounts the taxpayer elects to expense under Code Sec. 179 (regardless of whether there is sufficient taxable income to deduct the full amount in the current year) reduces the basis of the property for purposes of depreciating it under MACRS or ADS,”

FAR (5/07/13): 96

[k1zuna]

“You can't deduct the 179 DEDUCTION in a year of loss. It still reduces the basis of the asset.”

Where is this coming from? Wiley book or something?

FAR - Passed
AUD - Passed
BEC - Passed
REG - 8/22/2013

[k1zuna]

@Mangos: after reading that page and making up an example, now I fully understand it. Thanks again.

Seriously though, I flipped open my old tax textbook, the rule wasn't there; flipped open my Wiley book, wasn't there either…

I hate tax too.

FAR - Passed
AUD - Passed
BEC - Passed
REG - 8/22/2013

[Author]

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