Depreciation deduction 100%?

[dmytrolakota]

 If a partnership, grossing approximately 485k. The final net is 20k for the tax year, 10k for each partner. However, there was new machinery purchased in 2018 for 80k. If they elect to take the 100% depreciation...is the full amount taken? leaving the business with a -60k loss for the tax year? Leaving each partner with -30k?

[TaxGuyBill · Accepted solution]

Yes.

As a side point, you don't "elect" the 100% Bonus depreciation.  That is the required default unless you "elect out" of it.

[dmytrolakota]

Would it be different if the company did not make any profit for the year and net was say -10k....? would they still be able to take the deduction? I guess what I'm trying to figure out is if the partnership needs to make a profit or not to use the 100% depreciation?

[TaxGuyBill]

No, there is no need to make a profit for using Bonus depreciation.  Bonus depreciation can create a loss.

On the other hand, Section 179 can not create a loss.  But that is not what you are asking about.

[dmytrolakota]

thank you. appreciate it. however what do you mean by saying Section 179 can not create a loss?

[TaxGuyBill]

In your same situation, if you claimed $80,000 of Section 179, only $20,000 would be used on this tax return (resulting in $0 profit).  The other $60,000 of unused Section 179 would carry over to next year.

[dmytrolakota]

gotcha but if you use the 100% depreciation....the total amount of machinery would be completely written off in that year regardless of profit

[TaxGuyBill]

Yep.

[George4Tacks]

IRC 179 has to  pass two hurdles - One at the Partnership level, then a second at the individual level.
As stated, bonus has no hurdle.
As an aside, taking the loss, you lose the 199A deduction. Also consider changes in NOL treatment.
UGH! This is going to be an ugly year.

[IRonMaN]

But one could be a bigger hurdle over the other when dealing with your state return if they don't conform with federal rules.

[TaxGuyBill]

"you lose the 199A deduction"

It might be nice to avoid that for this year.