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Research Problem 3. Andy has operated his moving company, MoveOn, as a sole proprietorship for several years. In the current tax year, MoveOn placed into service $480,000 of property qualifying for immediate expensing under § 179, Andy also joined with another local mover to form and operate a storage partnership, The Attic LLC, Andy holds a 90% capital and profits interest in The Attic. This year, The Attic purchased and placed into service $2.2 million of property qualifying for expensing under § 179 Andy has $600,000 of taxable income from MoveOn and a $750,000 share of ordinary income from his 90% ownership of The Attic, both before considering any § 179 expense. Assuming that Andy wants to maxi- mize his current deductions (without sacrificing future deductions), how much can he elect to deduct under § 1792 How are any remaining expenditures treated?

Solution

Section 179: Section 179 was enacted to help the small business enterprises to get the deduction of depreciation of certain assets, viz property in one year rather than depreciating it over the longer period. Thus the full cost of the property is allowed immediately rather than distributing it over the life of the asset.

As per section 179, the maximum deduction for each property can be $5000000 and total deduction in a year can\'t exceed $2 million.

In the present case Andy in the case of his individual business, Move On can claim deduction of $480000 out of his income of $600000. Thus his total income would be $120000.

As far as income of Attic is concerned, the total income of the firm is $750000 and maximum deduction that can be claimed for the property is $500000. Thus deduct $500000 from $750000 and balance amount of $250000 is taxable.

Total income of Andy= $120000+90%of $250000

                              = $345000

As far as deduction of property is concerned in case of Attick, the balance deduction can be carrry forward to the next year and can be claimed out of the income of the next year subject to monetary limit of $500000 or Income of the next year, whichever is less.