In Year 1, Company X purchased equipment for .2 million. The Section 179 limit is .16 million and the phase-out threshold is .05 million. Taxable income is million. What is the maximum Section 179 deduction allowed?

Answer options:

.16 million

.01 million

.2 million

How to approach this question

Section 179 Calc: 1. Start with Max Limit. 2. Subtract (Total Purchases - Threshold). 3. Result is Allowable Deduction (limited to Taxable Income).

Full Answer

B..01 million✓ Correct

The maximum Section 179 deduction is reduced dollar-for-dollar by the amount of property placed in service exceeding the threshold. Reduction = 3,200,000 - 3,050,000 = 150,000. Deduction = 1,160,000 - 150,000 = 1,010,000.

Common mistakes

Forgetting the phase-out reduction.

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