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Mower Deduction Tax Question

Discussion in 'Business Operations' started by LoneStarLawn, Feb 3, 2002.

  1. LoneStarLawn

    LoneStarLawn LawnSite Bronze Member
    Posts: 1,415

    I wanted to see if anyone knows the answer to my question off-hand.

    If a purchase was made for a new mower last year how do you deduct the costs of the equipment if the purchase was made through credit?

    Do you deduct payments during the year (though it is not a lease)?

    <b>OR</b>

    Do you take the full amount of the purchase and depreciate over a period of time and if so how do you deal with the interest paid?
     
  2. thelawnguy

    thelawnguy LawnSite Silver Member
    Posts: 2,412

    You can either depreciate the machine or section 179 the whole cost if its within the limits.

    Doesnt matter if its financed or not the IRS is not concerned with your payments. But the interest is deducted on the applicable line of your Schedule C or corporate tax return.

    If its a lease then this answer does not apply ;)
     
  3. LoneStarLawn

    LoneStarLawn LawnSite Bronze Member
    Posts: 1,415

    No Schedule C or corprate tax return here (partnership 1065)

    Thanks Bill. I will have to look at what interest we paid during the year and report that.
     
  4. LawnLad

    LawnLad LawnSite Senior Member
    Posts: 738

    My recollection is that sec 179, allows up to $24,000 a year in equipment write offs, and applies only if you make a profit, otherwise you have to depreciate the equipment. Basically you can't use sec 179 to show a loss. For example, if you have a $10,000 profit, and $15,000 in new equipment, you can't take a loss on the $5,000, you'll have to depreciate it.

    Your interest expense is different from the purchase price or the principal on the machine. If you can't write off the value of equipment, you won't show it on your P&L - rather it will appear on your balance sheet as an asset. Your interest expense is a tax deductible item. If you do sec 179 your new equipment, there will be no book value (won't show up on your balance sheet) since there is no depreciation to take on it.
     
  5. bruces

    bruces LawnSite Senior Member
    Posts: 648

    True, to a point. If you are a proprietorship and have other earned income (salary, spouse's salary if you are filing a joint return), you may still be able to take the Section 179 deduction against the other income. In a partnership, Sub S, or regular corporation, the deduction is limited to net income as stated above. You can take the write off and carry it over to the next year.

    That works like this:

    20,000 equipment, elect Section 179 on all.

    Current year profit, 12,000, deduct 12,000 of 179 to get profit to zero.

    Section 179 carryover to next year, 8,000.

    Next year profit, 25,000, deduct 8,000 carryover to get taxable income 17,000.
     
  6. LawnLad

    LawnLad LawnSite Senior Member
    Posts: 738

    Thanks for the clarification. Sounds right. Knowing the tax code certainly helps you to plan.
     
  7. ScottH

    ScottH LawnSite Member
    Posts: 60

    Best advice is to check with your accountant. I agree with everything posted, except that my understanding is that you can take Sect 179 expense to the extent allowed but any excess must then be depreciated over the remaining tax basis usable life. I didnt know you could carry over Sect 179.

    Additionally, there supposedly was a special additional asset expense approved after the 9-11 events that allows you to take 30% off the top, then take 179, then depreciate.

    Like i said, it's best to check w your accountant.
     

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