A business, 'Creative Designs LLC', purchased a used 3D printer for $120,000 and placed it in service on July 1, 2023. The printer is 7-year MACRS property. The company's taxable income before the Section 179 deduction is $80,000. What is the maximum Section 179 deduction 'Creative Designs LLC' can take for the 3D printer in 2023?
- A$80,000
- B$1,220,000
- C$1,160,000
- D$120,000
Show answer & explanationAnswer & explanation
Correct answer: A. $80,000
The maximum Section 179 deduction for 2023 is $1,160,000, and the phase-out threshold is $2,890,000. Since the cost of the printer ($120,000) is below the maximum deduction, the deduction is limited by the taxpayer's taxable income. The taxable income limitation before the Section 179 deduction is $80,000. Therefore, the maximum Section 179 deduction 'Creative Designs LLC' can take is $80,000. The remaining $40,000 ($120,000 - $80,000) can be carried forward.
Why the other options are wrong
- B. This is the phase-out threshold for Section 179 for 2023, not the deduction amount.
- C. This is the maximum Section 179 deduction allowed for 2023, not the amount the business can take.
- D. This is the cost of the asset, but the deduction is limited by taxable income.
Section 179 Taxable Income Limit
The Section 179 expense deduction cannot exceed the taxpayer's aggregate net income from all active trades or businesses during the tax year. Any amount disallowed due to this limitation can be carried forward.
- Deduction limited to taxable income from active trade/business.
- Unused Section 179 can be carried forward indefinitely.
- Does not apply to passive income.
Memory trick: Cost, Cap, then Income: Check these three, or your deduction won't be free!