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Year-end Section 179 Deduction Trap

Posted by Mike C Posted on Oct 21 2013

The current $500,000 Section 179 deduction limit applies to tax years beginning in 2013. Under current law, the limit will be a much lower $25,000 for tax years beginning in 2014. This presents a potential tax trap for fiscal year pass-through entities (e.g., partnerships and S corporations) with calendar year owners. Assets acquired and placed in service during the year beginning in 2013 and ending in 2014 will qualify for the larger limit, but the amount passed through to the owners will be reported on their 2014 tax return, when the much lower limit applies. In this scenario the excess amount will be wasted, it cannot be deducted nor can it be carried over. Although Congress may increase the Section 179 deduction limit for tax years beginning in 2014, there's no guarantee that it will come close to or equal the current $500,000 deduction limit.