Is it possible for an LLC with a taxable loss to claim the full Section 179 and bonus depreciation on $6,000 equipment purchased in 2024 under MACRS?
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To determine whether an LLC with a taxable loss can claim the full Section 179 and bonus depreciation on $6,000 of equipment purchased in 2024 under MACRS, we need to analyze the rules for both Section 179 expensing and bonus depreciation, as well as the interaction with taxable income and losses.
1. Section 179 Deduction
Eligibility and Limits:- Section 179 allows a taxpayer to elect to expense the cost of qualifying property (such as equipment) up to an annual limit ($1,220,000 for 2024, increased to $1,250,000 for 2025, and subject to a phase-out if total qualifying property placed in service exceeds $3,050,000 in 2024 or $3,130,000 in 2025).- The deduction is limited to the taxpayer’s aggregate taxable income from the active conduct of any trade or business during the year. Any amount that exceeds taxable income is not deductible in the current year but is carried forward to future years.
Application to an LLC with a Taxable Loss:- If the LLC has a taxable loss for the year (i.e., no taxable income from the active conduct of a trade or business), the Section 179 deduction is limited to zero for that year. The $6,000 cost of the equipment cannot be deducted under Section 179 in 2024, but the disallowed amount is carried forward and may be deducted in a future year when the LLC has sufficient taxable income.
Example from IRS Publications:
"The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Any cost not deductible in one year under section 179 because of this limit can be carried to the next year."
2. Bonus Depreciation (Special Depreciation Allowance)
Eligibility and Limits:- Bonus depreciation (special depreciation allowance under IRC §168(k)) allows a taxpayer to deduct a percentage of the cost of qualified property (generally, property with a recovery period of 20 years or less) in the year the property is placed in service. For property acquired after September 27, 2017, and placed in service in 2024, the bonus depreciation rate is 60% (phasing down to 40% in 2025).- There is no taxable income limitation for bonus depreciation. It can create or increase a net operating loss (NOL).
Application to an LLC with a Taxable Loss:- The LLC can claim bonus depreciation on the $6,000 equipment in full, even if it has a taxable loss for the year. The deduction is not limited by taxable income and can increase the loss.
3. MACRS Depreciation
- After applying Section 179 and bonus depreciation, any remaining basis is depreciated under MACRS using the applicable recovery period and method (e.g., 5-year property for most equipment, using 200% declining balance).
4. Order of Deductions
- Section 179 is applied first, then bonus depreciation, then regular MACRS depreciation on any remaining basis.
5. LLCs and Pass-Through Entities
- For an LLC taxed as a partnership, the Section 179 income limitation applies at both the entity and the member level. The bonus depreciation rules apply at the entity level, and the deduction passes through to the members.
6. Summary Table
7. Conclusion
- Section 179: The LLC cannot claim the full Section 179 deduction in 2024 if it has a taxable loss. The deduction is limited to taxable income from the active conduct of a trade or business, and any unused amount is carried forward to future years.
- Bonus Depreciation: The LLC can claim the full bonus depreciation on the $6,000 equipment in 2024, even if it has a taxable loss. There is no income limitation, and the deduction can create or increase a net operating loss.
- MACRS: Any remaining basis after Section 179 and bonus depreciation is depreciated under MACRS.
Therefore, for $6,000 of equipment purchased in 2024, an LLC with a taxable loss can claim full bonus depreciation, but not the full Section 179 deduction (which is limited to taxable income and carried forward if unused).
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