Section 179 Deduction

[Taxman]

I have a question regarding taking a section 179 deduction for leased property. In publication 946 they say it must have been acquired by purchase. If you lease a piece of equipment with a $1 purchase option at the end of the lease, would that qualify as purchased property? Or are you not allowed to take a section 179 deduction for any type of lease?

[skhyatt]

Ttb 9-12

Leased property. Leased property is depreciable only if the taxpayer
retains incidents of ownership. Incidents of ownership include
legal title to the property, legal obligation to pay for the
property, responsibility to pay maintenance and operating expenses,
responsibility for taxes, and risk of loss if the property is
destroyed or damaged.

[skhyatt]

Btw

I found this reply using the WebCD demo. A couple of mouse clicks, copy and pasted the answer into the reply. Can't get much faster than that.

[dsi]

Taxman. I'm not at my desk and therefore have no cites for you, but you are talking about a capital lease vs an operating lease. Operating lease = lease=current expense.

Captial lease=purchase=depreciation.

From what your describe, you have a capital lease. IOW, you are purchasing the asset. Therefore, set it up as a depreciable asset on your books.

[Taxman]

Thanks for the replies. I saw on the WebCD about the incidents of ownership but would a capital lease be eligible for the section 179 deduction or does it need to be depreciated over the useful life of the asset? I don't see a clear cut answer in the TB or publication.

[BOB W]

If at the end of the lease, the payoff is 10% or less, the lease is considered a purchase/finance and the asset should be depreciated, as well as being eligible for 179. In addition, an amoritization schedule needs to be set up for interest expense over the life of the finance (lease)..

[Bees Knees]

In other words, a capital lease is just a fancy way of saying tax law considers it a purchase, not a lease, since the terms of the lease make it as if it were a purchase.

A sort of disregard the lease rule and treat it as a purchase. Depreciate it (or Section 179 it) as if it were a purchase.

[Taxman]

Thanks

for all the help. That clears it up for me. I just wanted to make sure I didn't use the section 179 deduction on something that wasn't allowed. Thanks again.

[Bees Knees]

I found this reply using the WebCD demo. A couple of mouse clicks, copy and pasted the answer into the reply. Can't get much faster than that.

The WebCD is fast because you use your same memory patterns to find things as you do using the print version. There is no new learning curve, if you already know where things are in the print version.

For example, I can visually picture in my mind the auto standard mileage rate chart on page 10-1. I can visually picture in my mind the Single Parent Situations chart in the middle of Tab 3. I can visually picture the per diem rates in the first few pages of Tab 8. The WebCD lays out each page as it appears in the print version. Most other electronic publications are presented in a different format than their print version counterpart. You have to rely on the search feature to find stuff. The problem with that method, however, is if I search for IRA and come up with 805 hits, it may take awhile to find the spot I am looking for.

[Davc]

Don't forget that the total of the lease payments is not basis. You must calculate interest that is then recognized over the term of the lease.