When preparing a Form 1040 return where Form 4562: Depreciation and Amortization is involved, you may received the following error message in Final Review:
"You have elected Section 179 on multiple activities, or have a Section 179 deduction on a K-1 activity. The total amount of Section 179 you may deduct has been limited. You must reallocate the Section 179 on one or more activities. See Tax Help for Form 4562, line 12 for the details"
ProSeries generates Form 4562: 179 Limitation if the taxpayer has Section 179 deductions for multiple activities, or has pass-through Section 179 deduction entered on a Schedule K-1, be it for a Partnership or an S Corporation.
Follow the steps for your activity below:
For Section 179 related to Schedule C, E, and F:
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On Only One activity:
- If only one activity is claiming the Section 179 deduction, ProSeries computes the Section 179 deduction and any limitation in Part 1 of Form 4562 for that activity.
- Each business activity has its own Form 4562 (there is a 4562 for Schedule C, a 4562 for Schedule E, Schedule F, etc.).
- Allocate allowable Section 179 on Form 4562, Line 12 Smart Worksheet for that activity.
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On Multiple Activities:
- Business income limitation for the current year is calculated on line 11.
- Line 12, Section 179 expense deduction is limited to amount on line 11.
- Figure out which activities have elected 179 and then allocate the amount of 179 among those activities.
- Allocate allowable Section 179 deduction on Form 4562, Line 12 Smart Worksheet for each activity.
For Section 179 related to Schedule K-1 Partnership:
Partnership K-1, 179 adjustments are made on the Schedule K-1 Partnership Additional Information 1, Box 12, Line 2. The Schedule K-1 Partnership Additional Information 1 Worksheet can be accessed by using the QuickZoom below L ine 12 on the Schedule K-1 Partnership Worksheet.
For Section 179 related to Schedule K-1 S-Corporation:
S-Corp K-1 pass-through 179 adjustments are made on Schedule K-1 S Corporation Additional Information 1, Box 11, Line 2. The Schedule K-1 S Corporation Additional Information 1 Worksheet can be accessed by using the QuickZoom below Line 11 on the Schedule K-1 S Corporation Worksheet.
The Total allowable Section 179 must equal line 11 of Form 4562:Section 179 Limitation. If the amount of available Section 179 is greater than the limitation on Form 4562, Line 11, you must allocate the Section 179 to equal the amount on line 11. If the amount of Section 179 allocated is less than the amount on line 11, the error will also appear. To help you decide how to allocate the deduction, you may want to review the Section 179 Expense Report. This report lists the elected Section 179 on new assets and the Section 179 carryovers for all activities.
For Section 179 related to 2106 assets:
Since the Section 179 deductions for Form 2106 vehicles are reported separately from the Section 179 deduction for all other Form 2106 assets, you must specify how much of the allowable amount you are allocating to each vehicle by entering it on Form 2106, Line 31 Smart Worksheet, line B.
Then you must enter the amount you are allocating to all other Form 2106 assets on Form 2106 Adjustments Worksheet, Depreciation Information Smart Worksheet, line D.
If you are manually completing Form 4562 for this return, and the taxpayer has multiple activities with a current year Section 179 deduction, you must manually complete Form 4562: Section 179 Summary to compute the limitation. In that case, do not make any entries in Part I of any other Form 4562, except for the Form 4562, Line 12 Smart Worksheet. This form is calculated only if there is a current year 179 deduction for more than one activity, or there is a pass-through Section 179 deduction from a partnership or S corporation.
