Question

Rex's wrecks purchased $150,000 in new equipment during the current year. Rex wants to use section 179 to expense the maximum amount of the purchase. How much will Rex get to expense under section 179, assuming the gross income from his business is $1,200,000 and his expenses other than section 179 are $1,150,000?

1) He can expense all $150,000 in the current year and have nothing to carry forward until next year.
2) He can expense the maximum $50,000 in the current year and carry forward $100,000 until next year.
3) He cannot use the section 179 expense this year because the total amount of the purchases is less than $510,000.
4) He can expense the maximum $510,000 in the current year and have nothing to carry forward until next year.

Answer 1

Rex can expense the entire $150,000 of new equipment under Section 179 because his net income of $50,000, after other expenses, sufficiently covers the deduction without reducing his business income below zero.

Step-by-step explanation:

Rex's decision to use Section 179 to expense the purchase of new equipment falls under business taxation rules. For the year in question, the maximum deduction limit under Section 179 is significantly higher than the $150,000 spent on the equipment, allowing for the entire purchase amount to be expensed, provided that the business's total income supports such a deduction.

Rex's gross income for the year is $1,200,000, and his expenses, excluding the Section 179 deduction, total $1,150,000. Thus, his net income before the Section 179 expense is $50,000. This means that Rex can expense the whole $150,000 purchase under Section 179 since it does not exceed his net income for the year after accounting for other expenses. It is important to note that Section 179 deductions cannot push a business's income below zero, which is not a concern in Rex's situation.

Therefore, Rex will get to expense the maximum amount he has purchased, which is $150,000, using Section 179, without any amount to carry forward to the next year.