Section 179 of the tax code allows a business to deduct the cost of certain property as an expense when the property is first placed in service. In a passthrough return, either Form 1065 for a partnership or Form 1120-S for an S corporation, the section 179 deduction isn't deducted by the business but is passed through to the partners or shareholders on Schedule K-1.
The passthrough entity is subject the business income and the investment limitations at the entity level before the section 179 is calculated and reported on Schedule K.
If you're using the depreciation module to keep track of assets, either in the main form or for rental property on Form 8825, when you add a new asset and take the section 179 deduction you'll see the deduction reduce the asset's basis subject to depreciation. Since the section 179 is not included in the business's deductions, it is reported directly to Schedule K line 11 and from there is allocated to the partners or shareholders according to their percentage of ownership.
If you're not using the depreciation module but are keeping track of assets in your own bookkeeping software and completing Form 4562 by hand, the section 179 deduction you enter will also flow directly to Schedule K.
Either option requires you to complete Part I of Form 4562, ensuring the business income limitation has been correctly calculated. On Form 4562, the business income limitation is initially the maximum amount and may need to be adjusted.
To adjust the business income limitation on Form 4562 in a passthrough return in TaxSlayer Pro (Form 1065 or 1120-S), from the Main Menu of the return select:
- Deductions
- Depreciation
- Form 4562
- Section 179
- Taxable Income Limitation Adjustment - Enter the necessary adjustment based on the instructions for Form 4562, Line 11.
Additional Information: