Question

Label the following statements as either "True" or "False" as regards the treatment of Section 179 in a year in which a carryforward has occurred. For example, in 2018, which of the following statements would pertain to a Section 179 carryforward from 2017.

a. It may be reduced, dollar-for-dollar, if the cost of § 179 property placed in service is in excess of $2,500,000.
b. No limit applies to the carryover if the taxpayer is considered a small business and has total assets of less than $1,000,000.
c. It may be limited to the business income in the carryforward year.
d. It may be limited to the additional first-year depreciation taken in the carryforward year.

Answer 1

For the treatment of Section 179 in a year with a carryforward, the deduction may be reduced if the cost of property exceeds $2,500,000, and it could be limited to the business income in the carryforward year. However, there is no blanket no-limit rule for small businesses with assets under $1,000,000, and the carryforward is not limited to the additional first-year depreciation.

Step-by-step explanation:

When addressing the treatment of Section 179 carryforward from the previous year, the following statements pertain to tax regulations:

1. True. It may be reduced, dollar-for-dollar, if the cost of § 179 property placed in service is in excess of $2,500,000. This limitation is designed to phase out the deduction for businesses with high capital expenditures, ensuring that the benefit is targeted primarily at small to medium-sized businesses.
2. False. While there are provisions for small businesses under Section 179, the statement is incorrect as it does not consider the limitations that apply based on investment limits and income. Therefore, even small businesses with total assets of less than $1,000,000 could face limitations on their carryover deduction.
3. True. The carryforward amount may be limited to the amount of business income in the carryforward year. Section 179 deduction cannot create or increase a net operating loss for the business; it can only be taken to the extent of taxable business income.
4. False. The limitation of the carryforward to the business income does not directly relate to the additional first-year depreciation, or "bonus depreciation." Instead, Section 179 and bonus depreciation are separate provisions with their own sets of rules and limitations.