Partnership -Can an individual partner have sec 179 in excess of income on K-1?

[equinecpa]

I'm doing a complicated partnership return. Allocation of income and expenses is based on each partners investment in certain assets (horses). I've got the numbers crunched out and allocations made but just noticed something. I opted to sec 179 one of the horse purchases as the partnership in it's entirety is profitable; but when it comes to allocating to the individuals, I have several k-1's where the 179 expense exceeds income.

I believe the Sec 179 deduction is based on the partnership income as a whole is it not? And then each partner has to review their dollar limitation at the personal level?

Carolyn

[ChEAr$]

You've got the gist of it.

I'm doing a complicated partnership return. Allocation of income and expenses is based on each partners investment in certain assets (horses). I've got the numbers crunched out and allocations made but just noticed something. I opted to sec 179 one of the horse purchases as the partnership in it's entirety is profitable; but when it comes to allocating to the individuals, I have several k-1's where the 179 expense exceeds income.

I believe the Sec 179 deduction is based on the partnership income as a whole is it not? And then each partner has to review their dollar limitation at the personal level?

Carolyn

First section 179 is determined on partnership level to the extent of partnership income.
then each partner can take it up to their own level of income.

[WhiteOleander]

Yes the Sec 179 is determined at the partnership level and at the partner's level. But, you might check with the partners first.

If I remember correctly, if the partner is unable to use the Sec 179 on his own return because of income limitation, the deduction will be lost to him. He cannot carry it over to a furture year nor can he use it as an adjustment to basis.

I think there was a discussion about this last year on the board here. So, it may be something to check out.

[ChEAr$]

179 carryover

Yes the Sec 179 is determined at the partnership level and at the partner's level. But, you might check with the partners first.

If I remember correctly, if the partner is unable to use the Sec 179 on his own return because of income limitation, the deduction will be lost to him. He cannot carry it over to a furture year nor can he use it as an adjustment to basis.

I think there was a discussion about this last year on the board here. So, it may be something to check out.

And if I remember correctly, partners, like S corp shareholders, do get to carry it over
if unusable in year one.
At least my excellent software took care of this some years ago.

[WhiteOleander]

This is from the Small Business TTB page 5-14

Partnerships and S corporations. A Section 179 deduction
claimed by a partnership or an S corporation flows through to a
partner or shareholder as a separately stated item on Schedule
K-1. The investment limit and business income limit apply first at
the partnership level, then at the individual level. Caution: If a Section
179 deduction from a pass-through entity is limited because
of the deduction limit or the investment limit on the individual’s
return, the limited amount is not deductible and is lost forever. In
this case, the basis is reduced for the total amount of Section 179
expense passing through even though the taxpayer is not allowed
to claim the deduction. Partnerships and S corporations should
structure a Section 179 deduction so that partners or owners do
not suffer loss of the deduction.

I thought I remembered reading that.

[JG EA]

TTB: "Section 179 Carryovers
If the taxpayer is unable to deduct the cost of any Section 179
property because of the business income limit, the disallowed
amount is reported on line 13, Form 4562, Depreciation and Amortization,
and that amount is carried over to the next year.
Planning Tip: Even if the Section 179 deduction is reduced because
of the business income limit, it is often advantageous to claim the entire
eligible amount and carry over the excess. This will increase the amount
available for the deduction in future years."

OK, it also says this. What is your conclusion? If on K-1 but limited to individual and we put on 4562 on individual return it can be carried over?

[WhiteOleander]

It does seem contradictory. I can only guess that if an individual elects to use the Sec 179, he can carryover the excess. But, since the election was made by a different entity, they do not get to carry that amount over.

The t/p can designate which sec 179 to carryover. So, if faced with this problem, perhaps he should use all the sec 179 from the K-1's before using any that he elected on his personal 1040. That way he might not lose any of the carryover.

[ChEAr$]

ahah!

It does seem contradictory. I can only guess that if an individual elects to use the Sec 179, he can carryover the excess. But, since the election was made by a different entity, they do not get to carry that amount over.

The t/p can designate which sec 179 to carryover. So, if faced with this problem, perhaps he should use all the sec 179 from the K-1's before using any that he elected on his personal 1040. That way he might not lose any of the carryover.

I really didn't think my software was wrong.