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Tax Guru-Ker$tetter Letter
Tuesday, September 11, 2007
Section 179 and Income Limits


Question about Section 179 Deduction

Dear Kerry - This is in response to an answer you posted regarding the ability to use Section 179 deduction amounts against wages.

1) If you have both business income and wage income, but the business income does not allow you to use the full Section 179 deduction, can you use the remaining dedution amount against wage income?

For instance, if you purchased an automobile for $10,000 and use it 50% for a business which you own, then you would have the right to a $5,000 section 179 deduction.

If however you could use only $2000 of this available deduction amount on Schedule C, then could you use the additional $3,000 as a deduction against wage income on Schedule A -- in the same year, same tax return?  

2) As a separate but related question, if you cannot use the Section 179 deduction on Schedule C at all, are you required to use the available Section 179 deduction against wages in the same year the car was put into service... or can you carry the deduction forward to a Schedule C in a future year at your own discretion?

I hope that these questions are written clearly and I very much appreciate any advice you may have the time to offer!

With many thanks, 



The interplay between the allowable Section 179 deduction and the taxable income limitation is trickier than you think and is not the kind of analysis you should be doing on your own. 

For example, the way the taxable income limit works is that it is very possible to have a Section 179 deduction create a large net loss on Schedule C.  The actual deduction is required to be shown on the schedule for which the asset was used.  In your case, if it was used for your Sch. C business, that is where the full allowable Section 179 would be shown, even though W-2 income may be what actually allows the deduction.

Another possible mis-statement that you need to clarify is the weight of the automobile.  If it is under 6,000 pounds GVW, the allowable Section 179 deduction is much less than for a vehicle weighing more than that.  Since you specified an automobile and not a truck or SUV, I wasn't sure you understood that important distinction, since most autos weigh much less than 6,000 pounds.

I hope this gives you the sense that you are in dangerous territory trying to do this kind of tax planning on your own.  You should be working with a professional tax advisor who can show you with real numbers how such deductions would work out on your tax returns.

Good luck.

Kerry Kerstetter





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