How do you calculate the maximum deduction allowed under IRS Section 179 for 2024?
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To calculate the maximum deduction allowed under IRS Section 179 for 2024, you must consider three main limitations:
- Dollar Limitation (Cap)
- Investment (Phase-Out) Limitation
- Business Income Limitation
Below is a step-by-step explanation of each, with the specific 2024 values and the calculation method:
1. Dollar Limitation (Cap)
For tax year 2024, the maximum Section 179 deduction you can elect is $1,220,000. This is the absolute cap on the deduction for most taxpayers for property placed in service in 2024.
2. Investment (Phase-Out) Limitation
If the total cost of Section 179 property placed in service during 2024 exceeds $3,050,000, the maximum deduction is reduced dollar-for-dollar by the amount by which your total qualifying property placed in service exceeds this threshold.
Calculation:- If your total Section 179 property placed in service is less than or equal to $3,050,000, you are not affected by this limitation.- If your total Section 179 property placed in service is more than $3,050,000, subtract $3,050,000 from your total, and reduce the $1,220,000 cap by that amount.
Example:- If you place $3,200,000 of Section 179 property in service: - Excess over threshold: $3,200,000 – $3,050,000 = $150,000 - Reduced cap: $1,220,000 – $150,000 = $1,070,000- If you place $4,270,000 or more in service, your Section 179 deduction is reduced to zero.
3. Business Income Limitation
The Section 179 deduction for any year cannot exceed your aggregate taxable income from the active conduct of all your trades or businesses during that year. This is calculated before taking the Section 179 deduction itself into account.
- If your business income is less than the maximum deduction calculated above, your Section 179 deduction is limited to your business income.
- Any amount you cannot deduct because of this limitation can be carried forward to future years.
Example:- If your business income is $900,000, and your calculated Section 179 deduction (after the above two limitations) is $1,070,000, you can only deduct $900,000 in 2024. The remaining $170,000 can be carried forward to 2025.
4. Special Limitation for SUVs
For certain SUVs placed in service in 2024, the maximum Section 179 deduction is $30,500 per vehicle, even if the overall cap is higher. This applies to vehicles with a gross vehicle weight rating (GVWR) over 6,000 lbs but not more than 14,000 lbs, used more than 50% for business.
5. Summary of Calculation Steps for 2024
- Start with the $1,220,000 cap.
- Subtract any amount by which your total Section 179 property placed in service exceeds $3,050,000.
- Limit the result to your aggregate business income for the year.
- Apply the special $30,500 per-vehicle cap for qualifying SUVs.
- Any unused deduction due to the business income limitation can be carried forward.
In summary: For 2024, the maximum Section 179 deduction is $1,220,000, reduced dollar-for-dollar by the amount your total Section 179 property placed in service exceeds $3,050,000, and further limited to your aggregate business income for the year. For qualifying SUVs, the per-vehicle cap is $30,500.
If you need a step-by-step example with your specific numbers, please provide your total Section 179 property placed in service and your business income for 2024.
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