CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsHard
A business owner, Ms. Miller, purchased a qualified Section 179 asset for $150,000 and placed it in service on April 1, 2023. Her taxable income before the Section 179 deduction was $100,000. Assuming the maximum Section 179 deduction limit for 2023 was $1,160,000 and the phase-out threshold was $2,890,000, what is Ms. Miller's Section 179 deduction for 2023?
- A$150,000
- B$0
- C$1,160,000
- D$100,000
Show answer & explanationAnswer & explanation
Correct answer: D. $100,000
The Section 179 deduction is limited to the taxpayer's taxable income from the active conduct of any trade or business. Although Ms. Miller purchased a $150,000 asset and the overall limit is $1,160,000, her Section 179 deduction is limited to her taxable income of $100,000.
Why the other options are wrong
- A. This option incorrectly assumes the full cost of the asset can be deducted without considering the taxable income limit.
- B. This option is incorrect; a deduction is allowed.
- C. This option is the maximum statutory limit for the year, which is not applicable due to the taxable income limitation.
Section 179 Taxable Income Limit
The Section 179 expense deduction for a tax year cannot exceed the taxpayer's aggregate amount of taxable income derived from the active conduct of any trade or business during that tax year.
- Limits the deduction to business income.
- Any disallowed amount can be carried forward indefinitely.
- Applies after the investment spending phase-out.
Memory trick: 179: 'Spend, Phase, Income, Carry.'