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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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179 deduction

Customer Question

Can a partnership (leasing) use the 179 deduction for pickup trucks purchased in year 2004? If so, what is the most that can be deducted?
Submitted: 11 years ago.
Category: Tax
Expert:  Jon Andrews replied 11 years ago.

The partnership buys trucks and then leases them to others? Just want to make sure I understand the situation before giving you an answer.

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Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Yes the partnership purchases property, trucks, trailers, forklifts, etc. and then leases them. I have a corporation that leases these items from my partnership. My problem is that the partnership makes a profit that I have to claim as income on line 17 of my Form 1040 that kills me every year. I am looking for large deductions so my partnership doesn't make that much money!
Expert:  Jon Andrews replied 11 years ago.
Apparently you have the lease payments set too high.  

Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. However, you can claim a section 179 deduction for the cost of the following property.

  1. Property you manufacture or produce and lease to others.

  2. Property you purchase and lease to others if both the following tests are met.

    1. The term of the lease (including options to renew) is less than 50% of the property's class life.

    2. For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property.

In your case this is going to mean that you need "operating expenses" for which you are not reimbursed. For example, if the partnership pays property taxes that would count, but if it gets reimbursed separately from the lease payments, it would not count.

If you would like further information or clarification, please let me know.

[email protected]

Customer: replied 11 years ago.
Reply to Jon Andrews's Post: That's what I figured. I actually read the paragraph you e-mailed me from chapter 2 page 17 of Section 179 from Pub 946. I was just hoping you might know some "loophole" that I didn't.
Expert:  Jon Andrews replied 11 years ago.

No loopholes on that one.

If you could tell me why you have it structured this way, I might be able to give you some different ideas.

[email protected]
Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Instead of "joe blow" getting rent money from my corporation, and letting me make his propery payments for him, I elected to form a partnership that bought property so I could lease it to my corporation so my corporation could make my payments for me. Eventually I will own rental property that my corporation paid for and also the corporation gets to write off the lease payments 100%. Now it just hurts to have to claim the partnership income every year on my personal income taxes.

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