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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12015
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a client that is currently leasing a piece of

Customer Question

I have a client that is currently leasing a piece of machinery equipment for his business. The lease is for 5 years, it includes a 1$ buyout and 10% purchase on termination clause.
The monthly lease payments are 4,300.00 (they started in June 2015 and is a 5 year lease)
What can they deduct foo tax purposes in 2015? The 6 months of lease payments, or can they use the section 179 deduction and deduct the entire cost of the lease? I know they increased the section 179 deduction to 500,000, but am not sure about the remaining lease payments. Thank you
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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The increase in the overall limit (500,000) is for 2016 and forward.

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The limit for section 179 for 2015 is 25000 ... So they can deduct 25000 as a section 179, then once that accelerated depreciation is used up they can the begin to depreciate normally fur the equipment's class life.

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You cannot deduct both lease payments AND depreciation.

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Once you've chosen depreciation by using 179, (for 2015) you've essentially pulled the first 25,000 into the first year placed into service.

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Once you are at the point in time where you would have used 25,000 of depreciation (where your accumulated depreciation account would be at 25,000 for that piece of equipment) you will pick uphe depreciation as you would have normally depreciating and continue for the rest of the class life.

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Let me know if you questions.

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Lane

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Customer: replied 1 year ago.
I thought I have read somewhere that they have approved the increase in 2015 to 500,000. If this is the case, can they deduct the full cost of the lease up to the limit or just the lease payments made for 2015?
Expert:  Lane replied 1 year ago.

You're right. ...

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(Just went back and read the law - "Path act 2015")

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While all of the previous last minute moves by congress re-extended for the following year, this one actually limits for the current year retroactively ... ( even equipment purchased on Jan 1st.)

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So, yes, now that the limit is 500,000, as long as the purchase price - retail value of the equipment - is under 500,000, it can all be expensed in the year placed into service

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From the lease payment and terns you mention, it appears that you're well under the limit.

Expert:  Lane replied 1 year ago.

Hope this has helped...Let me know if you have questions.
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If this HAS helped, (and you don’t have additional questions on this), I'd really appreciate your positive rating … (by using the stars on your screen) … … That’s the only way I'll be credited a portion of what you've paid JustAnswer.
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Thank you,
Lane