USA Sect 179: puchased 2014 placed in service 2015

[fritomd]

Shortly after the Tax Increase Prevention Act of 2014 was signed on 12/19, a client purchased qualified equipment with the understanding that he would be able to take a section 179 deduction (per salesman). Unfortunately, the equipment will not be placed into service until well into 2015.

I do not believe that he can utilized a 179 deduction since the equipment will not be placed in service in the same year it was purchased. I am sure that there are going to be many taxpayers in the same situation.

questions:
1. can the client take a 179 deduction?
2. if not, then he would be able to take the bonus depreciation + MACRS (i..e. not able to use 179 in 2015 for QE purchased in 2014)?

thanks
frank saporito

 

[ColinCPA]

Von Kalinowski, Julian O., (1993) TC Memo

"An asset subject to depreciation is considered to be placed in service when it's in a condition or state of readiness and availability 1 for a specifically assigned function 2 whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity. 3 Where there's no proof that an asset is capable of performing its intended function, the asset isn't placed in service until readiness, availability, and capability to perform its intended function are proved."

Are the assets operational and ready to be used? Placed into service doesn't necessarily mean that the asset is currently being utilized, just that it could readily be placed into service if needed.

 

[fritomd]

Colin, thank you for replying.

The equipment has been purchased, but has not been delivered to the client.

 

[Daniel Russell]

Frank,

I don't think that you will be able to take any depreciation for that item. Both Section 179 and Bonus Depreciation require that the asset be placed in service by 12/31. It will appear as an asset on the books, but will not be depreciated until 2015. The IRS provides multiple examples in Pub. 946 that talk about what placed in service means. Your scenario fits into the category of assets that are not yet placed in service, and therefore cannot yet be depreciated. Keep in mind also, that Section 179 is limited to taxable income. It can be carried forward, but then it will be limited to the lesser of the maximum amount or taxable income for the carryforward year (if the law is not extended again next year, the maximum Section 179 deduction will be $25,000).

Hope this helps.

Dan