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I have two S Corp that operate in the same industry.

Corp A has 100K on net income and Corp B has 50K of net loss. On Corp B, I have the opportunity to take a 179 depreciation deduction. I know typically you can not take a 179 deduction on corporation with net losses, but can I take it with Corp A making a profit (common ownership and industry). I have heard mixed answers.


Other facts:

1. They are both 1-person S Corps.
2. There were no wages paid on either Corp.
3. Corp A and the shareholder did not have any other 179 depreciation expenses.


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Corp A has 100K on net income and Corp B has 50K of net loss. On Corp B, I have the opportunity to take a 179 depreciation deduction. I know typically you can not take a 179 deduction on corporation with net losses, but can I take it with Corp A making a profit (common ownership and industry). I have heard mixed answers.

These companies are related companies, so they share the limit on section 179 deductions. Even if you have losses, you can still elect to expense your asset purchases under section 179. You just may not be able to deduct that expense when you have a loss. Any 179 expense that you can't deduct is carried forward.

In an S corp, the sec 179 deduction is passed through to the shareholders. It is at the shareholder level where the net income limitation is applied. So from the information you've given, the shareholder will have net income of $50k from these two businesses. So it appears that the shareholder could deduct the sec. 179 expense. (Unless there are other losses you haven't mentioned.)

1. They are both 1-person S Corps.
2. There were no wages paid on either Corp.


You do know that this is a pretty risky position. Someone must be doing something for these corporations to make money. That person should be paid something. Assuming that person is you, the IRS could call all of your distributions from the companies wages, and ding you for the payroll taxes, penalties, and interest.

--Peter
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In an S corp, the sec 179 deduction is passed through to the shareholders. It is at the shareholder level where the net income limitation is applied
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IIRC, the 179 limitation as it relates to a net loss is applied at the entity level.

pete
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ptheland: (in a moment of pompous authority)
In an S corp, the sec 179 deduction is passed through to the shareholders. It is at the shareholder level where the net income limitation is applied

hghcpa: (carefully bringing him back to earth)
IIRC, the 179 limitation as it relates to a net loss is applied at the entity level.

ptheland:
Darn memory. I've got to get that fixed. It applies at both the entity AND the shareholder level. Thanks for making me look it up.

--Peter
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ptheland:
Darn memory. I've got to get that fixed. It applies at both the entity AND the shareholder level. Thanks for making me look it up
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I find this board to be an excellent mechanism to keep a practitioner on his "toes" so to speak. It seems I too find myself doing what you did in this post.... the board is almost like a cpe course, except of course your learn something but don't get any hours for it!!


pete
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