Section 179 Depreciation Deduction | Tax Tip of the Week | No. 61 October 6, 2010
Posted by bradstreetblogger in : Deductions, Tax Tip , 1 comment so farTax Tip of the Week | October 6, 2010 | No. 61
Depreciation Deduction
Section 179 Depreciation Deduction
If you’re a business owner, you are probably familiar with Section 179 and its benefits. Section 179 allows business owners to fully deduct certain equipment purchases in the year they were purchased rather than depreciating the expense over several years. To qualify, property must be used more than 50% in a trade or business and be acquired from an unrelated party.
Under The Small Business Jobs Act, you can now write off up to $500,000 of qualified business assets placed in service in tax years beginning in 2010 & 2011. Without this law the maximum deduction would have been $250,000. The maximum deduction phases out dollar-for-dollar for purchases exceeding a specified threshold.
The Small Business Jobs Act also extends a Recovery Act provision for Section 168 “Bonus Depreciation” allowing for up to 50% of the cost of new assets to be depreciated in the year of purchase.
For 2012, it looks like the maximum Section 179 deduction will be decrease to $25,000.
We’ll keep you posted.
As always, give us a call if you have any questions.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.
This week’s author: Dawn Bradstreet, CPA
Rick Prewitt – the guy behind TTW
…until next week.
Create a tax break-buy your parents’ home | Tax Tip of the Week | No. 60 October 5, 2010
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Do you have aging parents that live in an appreciated home, but no longer reap any tax benefits from ownership? For example, their home is paid off and there is no mortgage interest deduction for them to deduct.
By buying your parents’ home, and then rent it back to them at the going market rate, they would gain instant access to their home equity (without moving) and you’d pick up some generous tax deductions.
To avoid gift-tax consequences, you need to pay a fair market price for the home. Be sure to support the purchase price with a qualified appraisal. Then, both sides should enter into a lease at a fair-market rental value. Note: tax courts have ruled that landlords can reduce the fair-market rent by 20% when renting to relatives because of the reduced maintenance and management costs.
Once that is accomplished, you would then be entitled to reap the tax benefits of owning a rental property. This would include write-offs for mortgage interest, property taxes, utilities, maintenance, insurance, etc. You would also be able to take a depreciation deduction based on the purchase price of the home (but not the land value). If your parents live out-of-town, you could realize a bonus benefit of deducting travel expenses for an occasional visit to inspect your rental investment!
These deductions would offset the rental income you receive from your parents. Any allowable tax loss would begin to be phased out if your adjusted gross income exceeds $100,000.
Eventually, your parents won’t be able to live in the house any longer. Then, you can sell it, rent to someone else, or move into it yourself. If you move into the home and make it your principal residence for at least two years, you could then sell it and shelter another $250,000 or $500,000 in capital gains!
This is only a simplified example. If you want to consider this tax strategy, we strongly urge you to call us first.
As always, give us a call if you have any questions.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.
Rick Prewitt – the guy behind TTW
…until next week.
Commuting to School? Keep the Tax Meter Running | Tax Tip of the Week | No. 59 September 22, 2010
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If you drive to college classes, your commuting expenses are an often overlooked deduction. For 2010, you can use the standard mileage rate of 50 cents per mile plus tolls and parking fees for education-related travel.
You can also deduct the transportation expenses incurred between your workplace and school if you go directly to school after work. Also, the cost of transportation from school to work is deductible if you attend school early in the day and go from class to work.
Here is the fine print:
- The classes you attend must be to enhance or promote your current career or profession. Classes to help you start a new career or profession do not qualify. For example: a teacher attending classes for a Masters in education would qualify. A student taking undergraduate classes would not qualify for the transportation deduction.
- You must be able to itemize your deductions.
- These transportation deductions are Miscellaneous Deductions subject to a 2% floor.
If you are taking classes this year be sure to keep track of your mileage. It may pay off on your next tax return.
As always, give us a call if you have any questions.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.
Rick Prewitt – the guy behind TTW
…until next week.
