Depreciation question

[Jane918]

I am trying to write off a tractor (section 179) for $17,533. It's most beneficial to only write off $10,433 and depreciate the remaining $7,100 over 5 years. There is a net profit on the farm, even after writing off the entire $17,533. I understand that you can't section 179 anything to create a loss. 

[Terry53029]

You should also consider bonus depreciation, but what is your question, and what software are you using

[abctax55]

" I understand that you can't section 179 anything to create a loss. "

That is not correct.  If there is other 'business' income on the return (including W-2 income) all of the §179 can be utilized.  And if not, it can be carried forward to the next year, to offset farm (and S/E income).

You can select any amount for § 179, but for bonus you would have to use either 100%, or zero.

[IRonMaN]

But hold the phone, what am I missing?  If there is a net profit after writing off the entire $17,533, why are you concerned about creating a loss?

[Jane918]

ProSeries is the software

I'm trying to understand why I'm unable to depreciate the entire cost of the tractor using section 179, with the farm still showing a net profit

[IRonMaN]

What type of entity are you dealing with?

[Jane918]

There is also some W2 income

I agree with you regarding "you can select any amount for S179"...that's why I'm confused.  When I try to section 179 the whole amount, it is only allowing a portion of the cost

[Terry53029]

Are you saying, when you fill out the asset worksheet for the tractor and you put the full cost as sec 179 the program is not allowing the full amount. What is your clients AGI

[Jane918]

I'm not worried about creating a loss.  I was just stating that if I was able to write off the entire amount (S179), the farm would still be showing a profit, so that's why I'm not understanding why I cannot write off the whole amount.  I'm fine with the result of writing off only a portion and depreciating the remaining over 5 years...I'm just trying to understand why this is happening

[Jane918]

Yes, that's correct

AGI is $36,949

[IRonMaN]

How about providing some numbers on the tax return so folks can maybe get a better idea of what is happening.  It's kinda hard to see that return from here.

[Jane918]

Farming / Form 4835

[Terry53029]

Jane, I just did a test return and it did take off the complete $17,533. on the asset worksheet what did you put as the "type of asset"

[Jane918]

Tractor cost $17,533

Without depreciating tractor at all, 4835 showing a profit of $31,359

In trying to section 179 the whole tractor, the depreciation expense on 4835 should be $18,206 (with other assets on the depr schedule), but only $11,106 is coming over.  ($7,100 difference)

It is most beneficial to only write off $10,433 and to depreciate the remaining $7,100 over 5 years.  

[abctax55]

Are your clients 'actively' farming the land?

[Jane918]

I've actually tried 2 types...

G-General purpose and E2-Qualified Farm Mach.  It really needs to be E2 (5 years)

I'm getting the same results for both

[Jane918]

It's rental ground (4835)

[taxiowa · Accepted solution]

You have to have business income on return to deduct 179 expense.  Form 4835 does not supply business income as it is passive rental income.

[Jane918]

Thank you so much...I did know this and it slipped my mind

Thank you!!

[The_AntiTax_Man]

@taxiowa  

I disagree with your solution.

See Form 4835, and line 12:

 

12. Depreciation and section 179 expense deduction not claimed elsewhere . .

Under some circumstances a taxpayer can use Section 179 depreciation on Form 4562 to reduce the net of Form 4835.

Also, if the taxpayer has positive net on Form 4797, then the net of 4797 amount can be used to increase the Section 179 depreciation limitation on Form 4562. 

@Jane918 

Tax preparer has to go to PS software "Depreciation Options" worksheet.  Scroll down to the "Federal Section 179 Information" section.  Line 3a will have the PS software computed Section 179 limitation amount.  Tax preparer has to enter net amount of Form 4835 [prior to using Section 179] plus the net of Form 4797 onto line 3b of this "Depreciation Options" worksheet to increase the amount of Section 179 that the PS software will allow on Form 4562.