 Most of this information can be found at Publication 946, How to Depreciate Property Taxure 2022. You can find on the IRS website, irs.gov, irs.gov, income tax formula. We're focused on line one income. Remember, in the first half of the income tax formula is in essence an income statement. However, just an outline, a scaffolding, other forms and schedules flowing into these line items. One of those, the schedule C, having business income minus business expenses, the net income then flowing into line one income of our income tax formula. First page of the form 1040, noting that the schedule C would flow into the schedule one, flowing into page one of form 1040, line number eight. The schedule C, profit or loss from business income statement format income minus expenses were focused on the expenses side and more particularly related to the depreciation and even more specifically the 179 component of it. So remember, support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. When we're talking about property, plant and equipment, even if you're dealing in a cash based system, you'll typically have to deviate from it doing and a cruel thing, putting the equipment on the books as an asset allocating the cost over the useful life. That would be the normal thought process for depreciation from a bookkeeping standpoint, which makes sense for decision making. Then you might have an accelerated depreciation. Remember for taxes, we would always like to get the stuff, the depreciation, the expense earlier as a general rule. There are exceptions. So if we can have an accelerated method like a double declining method, a maker's method usually being a form of double declining, that could be good. And if we can front load and get the deduction upfront in year one, that is usually a beneficial thing as well. And that's what we're talking now, which is basically the 179 deduction and possibly a special deduction are those types of items, which don't make sense from a bookkeeping standpoint, but sometimes make sense from a legal standpoint or from a law making standpoint to try to stimulate the economy or do whatever they're trying to do. So electing the 179 deduction just as a recap and the introduction, you can elect to recover all or part of the cost of certain qualifying property up to a limit by deducting it in the year you place the property in service. So we've got this depreciable property. Normally we would have to depreciate it. We would like oftentimes to get the depreciation in year one. And that's where the 179 deduction may come in. So this is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. Okay. So how much can you deduct? That's the big question. Your 179 deduction is generally the cost of the qualifying property. However, in other words, basically, whatever you paid for the qualifying property that was qualified for the 179, possibly getting the deduction. Now note how big that deduction could be because normally the idea from a bookkeeping standpoint is that these are such a big deviation in terms of when you're buying the equipment and when you're going to consume them to generate revenue. That's why you had to think about a depreciation in the first place. So it's obviously a substantial depreciation for those businesses buying equipment. That's part of the point from a legislative standpoint because they're trying to stimulate the economy by having people invest in larger pieces of equipment and so on. So however, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. So those are our two limits. Obviously, software helps us to apply these in practice, but we want to have a general idea of them so we can discuss these when talking to people, clients and whatnot. So these limits apply to each taxpayer, not to each business. However, seeing married individuals under dollar limits later. Okay. So for a passenger automobile, the total section 179 deduction and depreciation deduction are limited. Remember automobiles often has their own issues because the iris is concerned that people are buying, you know, obviously quite expensive automobiles when they don't need them for the business purpose, right? If you're just driving to a client's house, do you need a $150,000 car? Probably not. They might be skeptical that you might be overdoing it on the luxury side, meaning personal side of it instead of a business use of it. So that's why they might limit the deduction for automobiles. So it causes its own issue. So see, do the passenger automobile limit apply in chapter five? So you can check that out and we might talk a little bit about that later. If you deduct only part of the cost of section, of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. So if you're limited, it's a qualified piece of equipment, but you're limited in one way shape or form to the amount that you can deduct in the first year, not being able to deduct the full amount, then you may still be able to do what you would normally be able to do, take the amount that you didn't get to deduct and in essence depreciate it like you like normal, which you would think using oftentimes like a maker's depreciation, for example, depending on the type of property. We'll talk more about maker's method in future presentations. So trade in of other properties. So if you buy qualifying property with cash and a trade in its costs for purposes of the section 179 deduction includes only the cash you paid. So example, silver leaf, a retail bakery traded in two ovens having a total adjusted basis of $680 for a new oven costing $1,320. They received an $800 trade in allowance for the old ovens and paid $520 in cash for the new oven. So on the date that silver leaf traded in the two old ovens for the new oven, the old ovens and the new ovens are classified as real property under the law of the state in which the old and new ovens are located. And as a result, the old and new ovens are real property for purposes of section 1031. So this is getting a little bit tricky because remember we have this issue in terms of certain types of things. Are they part of the building real property and other words kind of like real estate or are they something separate from the structure in which case you might call them they would be like equipment or something like that other than part of the property. Now it's kind of interesting in terms of when you would want something to be called real property or not because if it's real property you might be able to get this 1031 exchange which often applies to like real estate which is kind of an interesting kind of scenario when you're talking like in this kind of scenario here because oftentimes if it wasn't related to an exchange situation oftentimes you might want to call it not real property but rather something other than real property like equipment or something because then you might be able to depreciate it possibly having accelerated depreciation like a 179 maybe and possibly being able to depreciate it at least over a shorter period of time as opposed to real estate which you usually have to depreciate over a longer period of time. So it's kind of an interesting example they have here. The new oven is section 179 property only the portion of the new ovens basins paid by cash qualifies for the section 179 deduction therefore silver leaves qualifying costs for the section 179 deduction is 520. So it's kind of a a little bit more of an unusual interesting example there.