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Tax sec 179 question

760 Views | 7 Replies | Last: 7 yr ago by libertyag
ANSC Ag
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AG
Is it limited to businesses or can you claim it on your personal taxes for a business venture. I raise cattle as a side hustle but don't have a seperate entity for it. Can I purchase things like chutes, equipment, etc to reduce my individual tax bill while adding useful stuff to my cattle op?
libertyag
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The answer is yes if you have adequate earned income (and wages are included in earned income). For example, suppose your return reflects $60,000 in wage income and a farm loss, before 179, of $10,000. You then have $50,000 of 179 to play with ($60,000 less the $10,000). If you had $30,000 of wage income and a farm loss, before 179, of $35,000, then you could still elect 179 but it would be suspended and carried over since you have no net earned income (farm loss exceeds you wages).

Also, don't forget you have the option to use the 50% bonus depreciation on new (qualified) property. 179 property does not have to be new.

You need to take a look at the hobby loss rules if you do your own return and create farm losses year after year.
ANSC Ag
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AG
Thanks. The 179 only reduces the cost of the purchase by your tax rate, correct? In your example, I wouldn't be able to simply purchase 50k of equipment to bring my taxable income to 0?
LOYAL AG
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No. With a business purchase you are going to deduct the entire amount over some amount of time as depreciation expense. Section 179 simply allows you to take all of that loss in year one for tax purposes. So if you spend $50K you're going to get to deduct $50K, assuming you meet all other criteria libertyag already laid out.
combat wombat™
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LOYAL AG said:

No. With a business purchase you are going to deduct the entire amount over some amount of time as depreciation expense. Section 179 simply allows you to take all of that loss in year one for tax purposes. So if you spend $50K you're going to get to deduct $50K, assuming you meet all other criteria libertyag already laid out.
This.
combat wombat™
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AG
Here's the IRS webpage on this topic:

Section 179
ANSC Ag
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Did more reading. The deduction does not result in an equal reduction in the amount of taxes paid. A 10k deduction would reduce my tax bill by 3.5k at a 35% tax rate. The only way to get to 100% reduction in my tax bill would be to purchase enough equipment to bring my AGI to 0. Not possible cuz need cash flow for daily life. Is this correct? Thanks for the insight.
combat wombat™
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AG
Quote:

The deduction does not result in an equal reduction in the amount of taxes paid.
Deductions never reduce your tax by an amount equal to the deduction.
libertyag
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ANSC Ag said:

Did more reading. The deduction does not result in an equal reduction in the amount of taxes paid. A 10k deduction would reduce my tax bill by 3.5k at a 35% tax rate. The only way to get to 100% reduction in my tax bill would be to purchase enough equipment to bring my AGI to 0. Not possible cuz need cash flow for daily life. Is this correct? Thanks for the insight.
You are confusing tax deductions with tax credits.
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