Final Answer:
The basis of the property for cost recovery purposes is reduced by the § 179 amount. The business income limitation does not affect basis.
Step-by-step explanation:
The § 179 immediate expensing deduction allows businesses to deduct the cost of qualifying property in the year it is placed in service, rather than depreciating it over time. When applying this deduction to the computation of MACRS (Modified Accelerated Cost Recovery System) cost recovery, the § 179 amount is subtracted from the basis of the property. The basis is the original cost of the property, and reducing it by the § 179 amount reflects the upfront deduction taken for the property under § 179.
However, it's important to note that the business income limitation does not affect the basis of the property. The business income limitation is a restriction on the total amount of § 179 deduction that a taxpayer can claim based on their taxable income from the active conduct of a trade or business. While it limits the amount of immediate expensing a taxpayer can take in a given tax year, it doesn't impact the original basis of the property.
The basis is a separate calculation that represents the cost of the property for depreciation purposes. In summary, the § 179 immediate expensing deduction reduces the basis of the property for cost recovery purposes, but the business income limitation does not affect this basis.
This nuanced interaction between § 179 and MACRS is crucial for businesses to accurately calculate their allowable deductions and depreciation over the useful life of the property.