Question

XYZ, Inc. places the following assets into service during 2018:

Assets	Cost
Machinery (7-year)	$600,000
Furniture (5-year)	$600,000
Computers (5-year)	$200,000
Building (39-year)	$2,000,000

XYZ's taxable income before computation of the Section 179 deduction is $600,000. What is the maximum amount of Section 179 that XYZ can deduct?

Answer 1

According to Section 179, a business can deduct the full amount of qualified assets purchased and put to use in the year with the maximum limit of $1,000,000 and ' Total assets purchased ' threshold of $2,500,000.

So, First we have to ensure that the assets purchased are qualified for deduction and in this question all assets given are qualified.

Secondly we have to check the dates to ensure that the assets are purchased and put to use within 31st december of the year. Again here all the assets are placed in service within the year.

Next step, We have to check the total amount of qualified assets purchased and it should be within $2,500,000. But here XYZ, Inc., has exceeded this limit and their total purchases is $3,400,000 (total of all assets purchased)

NOTE: Sec 179 is mainly to help small and medium size business to thrive in the competitive environment. so if the company make purchases within threshold of $2,500,000 then such concerns can avail full deduction of $1,000,000. once a company exceeds this threshold limit and the amount of deduction available is reduced on Dollar to dollar basis. (i.e) for every dollar spent over $2,500,000 the available deduction is reduced by $1. Thus if a company spends $3,500,000 or more on purchases of assets then they will not be able to avail this deduction.

Calculation of Excess amount over Threshold limit of Total assets purchased:

S.no	Particulars	Amount ($)
1.	Total amount of assets Purchased by XYZ INC.,	3,400,000
2.	Threshold limit of Total assets purchased	2,500,000
3.	Excess amount over Threshold limit	900,000

As calculated XYZ Inc., has exceeded threshold limit by $900,000. So the Maximum deduction available will be reduced by $900,000.

Calculation of Maximum deduction available under sec179:

S.no	Particulars	Amount ($)
1.	Deduction available under Sec.179	1,000,000
2.	Excess amount spent over threshold limit (from table 1)	900,000
3.	Maximum deduction available under sec179	100,000

So, the Maximum Deduction available for XYZ Inc., under sec.179 is $100,000.

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