Dear TaxGuru,

What are the maximum section 179 dollar amount limits available for tax year 2007?

Also, please clarify what the rules are for qualifying to take this deduction. Are there any profit restrictions that apply when taking this election?

Thxs.

for 2007, the limit is 112K. The deduction cannot create a net operating loss, but can be carried ahead. The property must be tangible, depreciable, personal property (1245 property) used in a trade or business, but NOT for the production of income.(rental real estate) It must be placed in service in the year the deduction is taken. If the property ceases to become business property, the deduction will be recaptured. The anual limit on qualifying expenditures is 450k. As far as profit, the 179 deduction is not "phased out." It acts like depreciation for recapture purposes upon disposition and is recaptured as ordinary income. You can split the 179 up any way you want.

Section 179 allows taxpayers to write-off the cost of qualified property that is placed in service. To qualify for the section 179 deduction, your property must meet all the following requirements.

1. It must be eligible property, that is the property must be a qualified property.
2. It must be acquired for business use and used in that trade or business.
3. It must have been acquired by purchase( it must be new)
4.This deduction cannot result in net operating losses for the taxpayer. That is, the section 179 deduction cannot result in a net operating loss for the taxpayer.

The good news here is that the IRS has increased the depreciation allowance from $108,000 in 2006 to $125,000 for 2007.

The Investment limitation has also been increased from $430,000 in 2006 to $500,000 for 2007.

A detailed discussion on Section 179 qualified property and specific discussion on qualified property can be found by clicking the IRS link below.

Publication 946 (2006), How To Depreciate Property

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