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§1.179-0 Table of contents for section 179 expensing rules.
This section lists captioned paragraphs contained in §§1.179-1 through 1.179-6.
§1.179-1 Election to Expense Certain Depreciable Assets
(a) In general.
(b) Cost subject to expense.
(c) Proration not required.
(1) In general.
(2) Example.
(d) Partial business use.
(1) In general.
(2) Example.
(3) Additional rules that may apply.
(e) Change in use; recapture.
(1) In general.
(2) Predominant use.
(3) Basis; application with section 1245.
(4) Carryover of disallowed deduction.
(5) Example.
(f) Basis.
(1) In general.
(2) Special rules for partnerships and S corporations.
(3) Special rules with respect to trusts and estates which are partners or S corporation shareholders.
(g) Disallowance of the section 38 credit.
(h) Partnerships and S corporations.
(1) In general.
(2) Example.
(i) Leasing of section 179 property.
(1) In general.
(2) Noncorporate lessor.
(j) Application of sections 263 and 263A.
(k) Cross references.

§1.179-2 Limitations on Amount Subject to Section 179 Election
(a) In general.

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(b) Dollar limitation.
(1) In general.
(2) Excess section 179 property.
(3) Application to partnerships.
(i) In general.
(ii) Example.
(iii) Partner's share of section 179 expenses.
(iv) Taxable year.
(v) Example.
(4) S corporations.
(5) Joint returns.
(i) In general.
(ii) Joint returns filed after separate returns.
(iii) Example.
(6) Married individuals filing separately.
(i) In general.
(ii) Example.
(7) Component members of a controlled group.
(i) In general.
(ii) Statement to be filed.
(iii) Revocation.
(c) Taxable income limitation.
(1) In general.
(2) Application to partnerships and partners.
(i) In general.
(ii) Taxable year.
(iii) Example.
(iv) Taxable income of a partnership.
(v) Partner's share of partnership taxable income.
(3) S corporations and S corporation shareholders.
(i) In general.
(ii) Taxable income of an S corporation.
(iii) Shareholder's share of S corporation taxable income.
(4) Taxable income of a corporation other than an S corporation.

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(5) Ordering rule for certain circular problems.
(i) In general.
(ii) Example.
(6) Active conduct by the taxpayer of a trade or business.
(i) Trade or business.
(ii) Active conduct.
(iii) Example.
(iv) Employees.
(7) Joint returns.
(i) In general.
(ii) Joint returns filed after separate returns.
(8) Married individuals filing separately.
(d) Examples.

§1.179-3 Carryover of Disallowed Deduction
(a) In general.
(b) Deduction of carryover of disallowed deduction.
(1) In general.
(2) Cross references.
(c) Unused section 179 expense allowance.
(d) Example.
(e) Recordkeeping requirement and ordering rule.
(f) Dispositions and other transfers of section 179 property.
(1) In general.
(2) Recapture under section 179(d)(10).
(g) Special rules for partnerships and S corporations.
(1) In general.
(2) Basis adjustment.
(3) Dispositions and other transfers of section 179 property by a partnership or an S corporation.
(4) Example.
(h) Special rules for partners and S corporation shareholders.
(1) In general.
(2) Dispositions and other transfers of a partner's interest in a partnership or a shareholder's interest in an S
corporation.
(3) Examples.

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§1.179-4 Definitions
(a) Section 179 property.
(b) Section 38 property.
(c) Purchase.
(d) Cost.
(e) Placed in service.
(f) Controlled group of corporations and component member of controlled group.

§1.179-5 Time and Manner of Making Election
(a) Election.
(b) Revocation.
(c) Section 179 property placed in service by the taxpayer in a taxable year beginning after 2002 and before
2008.
(d) Election or revocation must not be made in any other manner.

§1.179-6 Effective dates.
(a) In general.
(b) Section 179 property placed in service by the taxpayer in a taxable year beginning after 2002 and before
2008.
(c) Application of §1.179-5(d).
[T.D. 8455, 57 FR 61316, Dec. 24, 1992, as amended by T.D. 9146, 69 FR 46983, Aug. 4, 2004; T.D. 9209, 70
FR 40191, July 13, 2005]

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of May 21, 2014
Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)
§1.179-1 Election to expense certain depreciable assets.
(a) In general. Section 179(a) allows a taxpayer to elect to expense the cost (as defined in §1.179
-4(d)), or a portion of the cost, of section 179 property (as defined in §1.179-4(a)) for the taxable year
in which the property is placed in service (as defined in §1.179-4(e)). The election is not available for
trusts, estates, and certain noncorporate lessors. See paragraph (i)(2) of this section for rules
concerning noncorporate lessors. However, section 179(b) provides certain limitations on the amount
that a taxpayer may elect to expense in any one taxable year. See §§1.179-2 and 1.179-3 for rules
relating to the dollar and taxable income limitations and the carryover of disallowed deduction rules.
For rules describing the time and manner of making an election under section 179, see §1.179-5. For
the effective date, see §1.179-6.
(b) Cost subject to expense. The expense deduction under section 179 is allowed for the entire
cost or a portion of the cost of one or more items of section 179 property. This expense deduction is
subject to the limitations of section 179(b) and §1.179-2. The taxpayer may select the properties that
are subject to the election as well as the portion of each property's cost to expense.
(c) Proration not required—(1) In general. The expense deduction under section 179 is
determined without any proration based on—
(i) The period of time the section 179 property has been in service during the taxable year; or
(ii) The length of the taxable year in which the property is placed in service.
(2) Example. The following example illustrates the provisions of paragraph (c)(1) of this section.
Example. On December 1, 1991, X, a calendar-year corporation, purchases and places in service section
179 property costing $20,000. For the taxable year ending December 31, 1991, X may elect to claim a section
179 expense deduction on the property (subject to the limitations imposed under section 179(b)) without
proration of its cost for the number of days in 1991 during which the property was in service.

(d) Partial business use—(1) In general. If a taxpayer uses section 179 property for trade or
business as well as other purposes, the portion of the cost of the property attributable to the trade or
business use is eligible for expensing under section 179 provided that more than 50 percent of the
property's use in the taxable year is for trade or business purposes. The limitations of section179(b)
and §1.179-2 are applied to the portion of the cost attributable to the trade or business use.
(2) Example. The following example illustrates the provisions of paragraph (d)(1) of this section.
Example. A purchases section 179 property costing $10,000 in 1991 for which 80 percent of its use will be in
A's trade or business. The cost of the property adjusted to reflect the business use of the property is $8,000 (80
percent × $10,000). Thus, A may elect to expense up to $8,000 of the cost of the property (subject to the
limitations imposed under section 179(b) and §1.179-2).

(3) Additional rules that may apply. If a section 179 election is made for “listed property” within the
meaning of section 280F(d)(4) and there is personal use of the property, section 280F(d)(1), which
provides rules that coordinate section 179 with the section 280F limitation on the amount of

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depreciation, may apply. If section 179 property is no longer predominantly used in the taxpayer's
trade or business, paragraphs (e) (1) through (4) of this section, relating to recapture of the section
179 deduction, may apply.
(e) Change in use; recapture—(1) In general. If a taxpayer's section 179 property is not used
predominantly in a trade or business of the taxpayer at any time before the end of the property's
recovery period, the taxpayer must recapture in the taxable year in which the section 179 property is
not used predominantly in a trade or business any benefit derived from expensing such property. The
benefit derived from expensing the property is equal to the excess of the amount expensed under this
section over the total amount that would have been allowable for prior taxable years and the taxable
year of recapture as a deduction under section 168 (had section 179 not been elected) for the portion
of the cost of the property to which the expensing relates (regardless of whether such excess reduced
the taxpayer's tax liability). For purposes of the preceding sentence (i) the “amount expensed under
this section” shall not include any amount that was not allowed as a deduction to a taxpayer because
the taxpayer's aggregate amount of allowable section 179 expenses exceeded the section 179(b)
dollar limitation, and (ii) in the case of an individual who does not elect to itemize deductions under
section 63(g) in the taxable year of recapture, the amount allowable as a deduction under section 168
in the taxable year of recapture shall be determined by treating property used in the production of
income other than rents or royalties as being property used for personal purposes. The amount to be
recaptured shall be treated as ordinary income for the taxable year in which the property is no longer
used predominantly in a trade or business of the taxpayer. For taxable years following the year of
recapture, the taxpayer's deductions under section 1688(a) shall be determined as if no section 179
election with respect to the property had been made. However, see section 280F(d)(1) relating to the
coordination of section 179 with the limitation on the amount of depreciation for luxury automobiles
and where certain property is used for personal purposes. If the recapture rules of both section 280F
(b)(2) and this paragraph (e)(1) apply to an item of section 179 property, the amount of recapture for
such property shall be determined only under the rules of section 280F(b)(2).
(2) Predominant use. Property will be treated as not used predominantly in a trade or business of
the taxpayer if 50 percent or more of the use of such property during any taxable year within the
recapture period is for a use other than in a trade or business of the taxpayer. If during any taxable
year of the recapture period the taxpayer disposes of the property (other than in a disposition to which
section 1245(a) applies) or ceases to use the property in a trade or business in a manner that had the
taxpayer claimed a credit under section 38 for such property such disposition or cessation in use
would cause recapture under section 47, the property will be treated as not used in a trade or business
of the taxpayer. However, for purposes of applying the recapture rules of section 47 pursuant to the
preceding sentence, converting the use of the property from use in trade or business to use in the
production of income will be treated as a conversion to personal use.
(3) Basis; application with section 1245. The basis of property with respect to which there is
recapture under paragraph (e)(1) of this section shall be increased immediately before the event
resulting in such recapture by the amount recaptured. If section 1245(a) applies to a disposition of
property, there is no recapture under paragraph (e)(1) of this section.
(4) Carryover of disallowed deduction. See §1.179-3 for rules on applying the recapture provisions
of this paragraph (e) when a taxpayer has a carryover of disallowed deduction.
(5) Example. The following example illustrates the provisions of paragraphs (e)(1) through (e)(4)
of this section.
Example. A, a calendar-year taxpayer, purchases and places in service on January 1, 1991, section 179
property costing $15,000. The property is 5-year property for section 168 purposes and is the only item of
depreciable property placed in service by A during 1991. A properly elects to expense $10,000 of the cost and
elects under section 168(b)(5) to depreciate the remaining cost under the straight-line method. On January 1,
1992, A converts the property from use in A's business to use for the production of income, and A uses the
property in the latter capacity for the entire year. A elects to itemize deductions for 1992. Because the property
was not predominantly used in A's trade or business in 1992, A must recapture any benefit derived from
expensing the property under section 179. Had A not elected to expense the $10,000 in 1991, A would have
been entitled to deduct, under section 168, 10 percent of the $10,000 in 1991, and 20 percent of the $10,000 in
1992. Therefore, A must include $7,000 in ordinary income for the 1992 taxable year, the excess of $10,000 (the
section 179 expense amount) over $3,000 (30 percent of $10,000).

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(f) Basis—(1) In general. A taxpayer who elects to expense under section 179 must reduce the
depreciable basis of the section 179 property by the amount of the section 179 expense deduction.
(2) Special rules for partnerships and S corporations. Generally, the basis of a partnership or S
corporation's section 179 property must be reduced to reflect the amount of section 179 expense
elected by the partnership or S corporation. This reduction must be made in the basis of partnership or
S corporation property even if the limitations of section 179(b) and §1.179-2 prevent a partner in a
partnership or a shareholder in an S corporation from deducting all or a portion of the amount of the
section 179 expense allocated by the partnership or S corporation. See §1.179-3 for rules on applying
the basis provisions of this paragraph (f) when a person has a carryover of disallowed deduction.
(3) Special rules with respect to trusts and estates which are partners or S corporation
shareholders. Since the section 179 election is not available for trusts or estates, a partner or S
corporation shareholder that is a trust or estate may not deduct its allocable share of the section 179
expense elected by the partnership or S corporation. The partnership or S corporation's basis in
section 179 property shall not be reduced to reflect any portion of the section 179 expense that is
allocable to the trust or estate. Accordingly, the partnership or S corporation may claim a depreciation
deduction under section 168 or a section 38 credit (if available) with respect to any depreciable basis
resulting from the trust or estate's inability to claim its allocable portion of the section 179 expense.
(g) Disallowance of the section 38 credit. If a taxpayer elects to expense under section 179, no
section 38 credit is allowable for the portion of the cost expensed. In addition, no section 38 credit
shall be allowed under section 48(d) to a lessee of property for the portion of the cost of the property
that the lessor expensed under section 179.
(h) Partnerships and S corporations—(1) In general. In the case of property purchased and placed
in service by a partnership or an S corporation, the determination of whether the property is section
179 property is made at the partnership or S corporation level. The election to expense the cost of
section 179 property is made by the partnership or the S corporation. See sections 703(b), 1363(c),
6221, 6231(a)(3), 6241, and 6245.
(2) Example. The following example illustrates the provisions of paragraph (h)(1) of this section.
Example. A owns certain residential rental property as an investment. A and others form ABC partnership
whose function is to rent and manage such property. A and ABC partnership file their income tax returns on a
calendar-year basis. In 1991, ABC partnership purchases and places in service office furniture costing $20,000
to be used in the active conduct of ABC's business. Although the office furniture is used with respect to an
investment activity of A, the furniture is being used in the active conduct of ABC's trade or business. Therefore,
because the determination of whether property is section 179 property is made at the partnership level, the office
furniture is section 179 property and ABC may elect to expense a portion of its cost under section 179.

(i) Leasing of section 179 property—(1) In general. A lessor of section 179 property who is treated
as the owner of the property for Federal tax purposes will be entitled to the section 179 expense
deduction if the requirements of section 179 and the regulations thereunder are met. These
requirements will not be met if the lessor merely holds the property for the production of income. For
certain leases entered into prior to January 1, 1984, the safe harbor provisions of section 168(f)(8)
apply in determining whether an agreement is treated as a lease for Federal tax purposes.
(2) Noncorporate lessor. In determining the class of taxpayers (other than an estate or trust) for
which section 179 is applicable, section 179(d)(5) provides that if a taxpayer is a noncorporate lessor
(i.e., a person who is not a corporation and is a lessor), the taxpayer shall not be entitled to claim a
section 179 expense for section 179 property purchased and leased by the taxpayer unless the
taxpayer has satisfied all of the requirements of section 179(d)(5) (A) or (B).
(j) Application of sections 263 and 263A. Under section 263(a)(1)(G), expenditures for which a
deduction is allowed under section 179 and this section are excluded from capitalization under section
263(a). Under this paragraph (j), amounts allowed as a deduction under section 179 and this section
are excluded from the application of the uniform capitalization rules of section 263A.

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(k) Cross references. See section 453(i) and the regulations thereunder with respect to installment
sales of section 179 property. See section 1033(g)(3) and the regulations thereunder relating to
condemnation of outdoor advertising displays. See section 1245(a) and the regulations thereunder
with respect to recapture rules for section 179 property.
[T.D. 8121, 52 FR 410, Jan. 6, 1987, as amended by T.D. 8455, 57 FR 61316, Dec. 24, 1992]

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of November 29, 2013
Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)
§1.179-2 Limitations on amount subject to section 179 election.
(a) In general. Sections 179(b) (1) and (2) limit the aggregate cost of section 179 property that a
taxpayer may elect to expense under section 179 for any one taxable year (dollar limitation). See
paragraph (b) of this section. Section 179(b)(3)(A) limits the aggregate cost of section 179 property
that a taxpayer may deduct in any taxable year (taxable income limitation). See paragraph (c) of this
section. Any cost that is elected to be expensed but that is not currently deductible because of the
taxable income limitation may be carried forward to the next taxable year (carryover of disallowed
deduction). See §1.179-3 for rules relating to carryovers of disallowed deductions. See also sections
280F(a), (b), and (d)(1) relating to the coordination of section 179 with the limitations on the amount of
depreciation for luxury automobiles and other listed property. The dollar and taxable income limitations
apply to each taxpayer and not to each trade or business in which the taxpayer has an interest.
(b) Dollar limitation—(1) In general. The aggregate cost of section 179 property that a taxpayer
may elect to expense under section 179 for any taxable year beginning in 2003 and thereafter is
$25,000 ($100,000 in the case of taxable years beginning after 2002 and before 2008 under section
179(b)(1), indexed annually for inflation under section 179(b)(5) for taxable years beginning after 2003
and before 2008), reduced (but not below zero) by the amount of any excess section 179 property
(described in paragraph (b)(2) of this section) placed in service during the taxable year.
(2) Excess section 179 property. The amount of any excess section 179 property for a taxable
year equals the excess (if any) of—
(i) The cost of section 179 property placed in service by the taxpayer in the taxable year; over
(ii) $200,000 ($400,000 in the case of taxable years beginning after 2002 and before 2008 under
section 179(b)(2), indexed annually for inflation under section 179(b)(5) for taxable years beginning
after 2003 and before 2008).
(3) Application to partnerships—(i) In general. The dollar limitation of this paragraph (b) applies to
the partnership as well as to each partner. In applying the dollar limitation to a taxpayer that is a
partner in one or more partnerships, the partner's share of section 179 expenses allocated to the
partner from each partnership is aggregated with any nonpartnership section 179 expenses of the
taxpayer for the taxable year. However, in determining the excess section 179 property placed in
service by a partner in a taxable year, the cost of section 179 property placed in service by the
partnership is not attributed to any partner.
(ii) Example. The following example illustrates the provisions of paragraph (b)(3)(i) of this section.
Example. During 1991, CD, a calendar-year partnership, purchases and places in service section 179
property costing $150,000 and elects under section 179(c) and §1.179-5 to expense $10,000 of the cost of that
property. CD properly allocates to C, a calendar-year taxpayer and a partner in CD, $5,000 of section 179
expenses (C's distributive share of CD's section 179 expenses for 1991). In applying the dollar limitation to C for
1991, C must include the $5,000 of section 179 expenses allocated from CD. However, in determining the
amount of any excess section 179 property C placed in service during 1991, C does not include any of the cost
of section 179 property placed in service by CD, including the $5,000 of cost represented by the $5,000 of
section 179 expenses allocated to C by the partnership.

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(iii) Partner's share of section 179 expenses. Section 704 and the regulations thereunder govern
the determination of a partner's share of a partnership's section 179 expenses for any taxable year.
However, no allocation among partners of the section 179 expenses may be modified after the due
date of the partnership return (without regard to extensions of time) for the taxable year for which the
election under section 179 is made.
(iv) Taxable year. If the taxable years of a partner and the partnership do not coincide, then for
purposes of section 179, the amount of the partnership's section 179 expenses attributable to a
partner for a taxable year is determined under section 706 and the regulations thereunder (generally
the partner's distributive share of partnership section 179 expenses for the partnership year that ends
with or within the partner's taxable year).
(v) Example. The following example illustrates the provisions of paragraph (b)(3)(iv) of this
section.
Example. AB partnership has a taxable year ending January 31. A, a partner of AB, has a taxable year
ending December 31. AB purchases and places in service section 179 property on March 10, 1991, and elects to
expense a portion of the cost of that property under section 179. Under section 706 and §1.706-1(a)(1), A will be
unable to claim A's distributive share of any of AB's section 179 expenses attributable to the property placed in
service on March 10, 1991, until A's taxable year ending December 31, 1992.

(4) S Corporations. Rules similar to those contained in paragraph (b)(3) of this section apply in the
case of S corporations (as defined in section 1361(a)) and their shareholders. Each shareholder's
share of the section 179 expenses of an S corporation is determined under section 1366.
(5) Joint returns—(i) In General. A husband and wife who file a joint income tax return under
section 6013(a) are treated as one taxpayer in determining the amount of the dollar limitation under
paragraph (b)(1) of this section, regardless of which spouse purchased the property or placed it in
service.
(ii) Joint returns filed after separate returns. In the case of a husband and wife who elect under
section 6013(b) to file a joint income tax return for a taxable year after the time prescribed by law for
filing the return for such taxable year has expired, the dollar limitation under paragraph (b)(1) of this
section is the lesser of—
(A) The dollar limitation (as determined under paragraph (b)(5)(i) of this section); or
(B) The aggregate cost of section 179 property elected to be expensed by the husband and wife
on their separate returns.
(iii) Example. The following example illustrates the provisions of paragraph (b)(5)(ii) of this section.
Example. During 1991, Mr. and Mrs. B, both calendar-year taxpayers, purchase and place in service section
179 property costing $100,000. On their separate returns for 1991, Mr. B elects to expense $3,000 of section
179 property as an expense and Mrs. B elects to expense $4,000. After the due date of the return they elect
under section 6013(b) to file a joint income tax return for 1991. The dollar limitation for their joint income tax
return is $7,000, the lesser of the dollar limitation ($10,000) or the aggregate cost elected to be expensed under
section 179 on their separate returns ($3,000 elected by Mr. B plus $4,000 elected by Mrs. B, or $7,000).

(6) Married individuals filing separately—(i) In general. In the case of an individual who is married
but files a separate income tax return for a taxable year, the dollar limitation of this paragraph (b) for
such taxable year is the amount that would be determined under paragraph (b)(5)(i) of this section if
the individual filed a joint income tax return under section 6013(a) multiplied by either the percentage
elected by the individual under this paragraph (b)(6) or 50 percent. The election in the preceding
sentence is made in accordance with the requirements of section 179(c) and §1.179-5. However, the
amount determined under paragraph (b)(5)(i) of this section must be multiplied by 50 percent if either
the individual or the individual's spouse does not elect a percentage under this paragraph (b)(6) or the
sum of the percentages elected by the individual and the individual's spouse does not equal 100
percent. For purposes of this paragraph (b)(6), marital status is determined under section 7703 and
the regulations thereunder.

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(ii) Example. The following example illustrates the provisions of paragraph (b)(6)(i) of this section.
Example. Mr. and Mrs. D, both calendar-year taxpayers, file separate income tax returns for 1991. During
1991, Mr. D places $195,000 of section 179 property in service and Mrs. D places $9,000 of section 179 property
in service. Neither of them elects a percentage under paragraph (b)(6)(i) of this section. The 1991 dollar
limitation for both Mr. D and Mrs. D is determined by multiplying by 50 percent the dollar limitation that would
apply had they filed a joint income tax return. Had Mr. and Mrs. D filed a joint return for 1991, the dollar limitation
would have been $6,000, $10,000 reduced by the excess section 179 property they placed in service during
1991 ($195,000 placed in service by Mr. D plus $9,000 placed in service by Mrs. D less $200,000, or $4,000).
Thus, the 1991 dollar limitation for Mr. and Mrs. D is $3,000 each ($6,000 multiplied by 50 percent).

(7) Component members of a controlled group—(i) In general. Component members of a
controlled group (as defined in §1.179-4(f)) on December 31 are treated as one taxpayer in applying
the dollar limitation of sections 179(b) (1) and (2) and this paragraph (b). The expense deduction may
be taken by any one component member or allocated (for the taxable year of each member that
includes that December 31) among the several members in any manner. Any allocation of the
expense deduction must be pursuant to an allocation by the common parent corporation if a
consolidated return is filed for all component members of the group, or in accordance with an
agreement entered into by the members of the group if separate returns are filed. If a consolidated
return is filed by some component members of the group and separate returns are filed by other
component members, the common parent of the group filing the consolidated return must enter into an
agreement with those members that do not join in filing the consolidated return allocating the amount
between the group filing the consolidated return and the other component members of the controlled
group that do not join in filing the consolidated return. The amount of the expense allocated to any
component member, however, may not exceed the cost of section 179 property actually purchased
and placed in service by the member in the taxable year. If the component members have different
taxable years, the term taxable year in sections 179(b) (1) and (2) means the taxable year of the
member whose taxable year begins on the earliest date.
(ii) Statement to be filed. If a consolidated return is filed, the common parent corporation must file
a separate statement attached to the income tax return on which the election is made to claim an
expense deduction under section 179. See §1.179-5. If separate returns are filed by some or all
component members of the group, each component member not included in a consolidated return
must file a separate statement attached to the income tax return on which an election is made to claim
a deduction under section 179. The statement must include the name, address, employer identification
number, and the taxable year of each component member of the controlled group, a copy of the
allocation agreement signed by persons duly authorized to act on behalf of the component members,
and a description of the manner in which the deduction under section 179 has been divided among the
component members.
(iii) Revocation. If a consolidated return is filed for all component members of the group, an
allocation among such members of the expense deduction under section 179 may not be revoked
after the due date of the return (including extensions of time) of the common parent corporation for the
taxable year for which an election to take an expense deduction is made. If some or all of the
component members of the controlled group file separate returns for taxable years including a
particular December 31 for which an election to take the expense deduction is made, the allocation as
to all members of the group may not be revoked after the due date of the return (including extensions
of time) of the component member of the controlled group whose taxable year that includes such
December 31 ends on the latest date.
(c) Taxable income limitation—(1) In general. The aggregate cost of section 179 property elected
to be expensed under section 179 that may be deducted for any taxable year may not exceed the
aggregate amount of taxable income of the taxpayer for such taxable year that is derived from the
active conduct by the taxpayer of any trade or business during the taxable year. For purposes of
section 179(b)(3) and this paragraph (c), the aggregate amount of taxable income derived from the
active conduct by an individual, a partnership, or an S corporation of any trade or business is
computed by aggregating the net income (or loss) from all of the trades or businesses actively
conducted by the individual, partnership, or S corporation during the taxable year. Items of income that
are derived from the active conduct of a trade or business include section 1231 gains (or losses) from
the trade or business and interest from working capital of the trade or business. Taxable income

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derived from the active conduct of a trade or business is computed without regard to the deduction
allowable under section 179, any section 164(f) deduction, any net operating loss carryback or
carryforward, and deductions suspended under any section of the Code. See paragraph (c)(6) of this
section for rules on determining whether a taxpayer is engaged in the active conduct of a trade or
business for this purpose.
(2) Application to partnerships and partners—(i) In general. The taxable income limitation of this
paragraph (c) applies to the partnership as well as to each partner. Thus, the partnership may not
allocate to its partners as a section 179 expense deduction for any taxable year more than the
partnership's taxable income limitation for that taxable year, and a partner may not deduct as a section
179 expense deduction for any taxable year more than the partner's taxable income limitation for that
taxable year.
(ii) Taxable year. If the taxable year of a partner and the partnership do not coincide, then for
purposes of section 179, the amount of the partnership's taxable income attributable to a partner for a
taxable year is determined under section 706 and the regulations thereunder (generally the partner's
distributive share of partnership taxable income for the partnership year that ends with or within the
partner's taxable year).
(iii) Example. The following example illustrates the provisions of paragraph (c)(2)(ii) of this section.
Example. AB partnership has a taxable year ending January 31. A, a partner of AB, has a taxable year
ending December 31. For AB's taxable year ending January 31, 1992, AB has taxable income from the active
conduct of its trade or business of $100,000, $90,000 of which was earned during 1991. Under section 706 and
§1.706-1(a)(1), A includes A's entire share of partnership taxable income in computing A's taxable income
limitation for A's taxable year ending December 31, 1992.

(iv) Taxable income of a partnership. The taxable income (or loss) derived from the active conduct
by a partnership of any trade or business is computed by aggregating the net income (or loss) from all
of the trades or businesses actively conducted by the partnership during the taxable year. The net
income (or loss) from a trade or business actively conducted by the partnership is determined by
taking into account the aggregate amount of the partnership's items described in section 702(a) (other
than credits, tax-exempt income, and guaranteed payments under section 707(c)) derived from that
trade or business. For purposes of determining the aggregate amount of partnership items, deductions
and losses are treated as negative income. Any limitation on the amount of a partnership item
described in section 702(a) which may be taken into account for purposes of computing the taxable
income of a partner shall be disregarded in computing the taxable income of the partnership.
(v) Partner's share of partnership taxable income. A taxpayer who is a partner in a partnership
and is engaged in the active conduct of at least one of the partnership's trades or businesses includes
as taxable income derived from the active conduct of a trade or business the amount of the taxpayer's
allocable share of taxable income derived from the active conduct by the partnership of any trade or
business (as determined under paragraph (c)(2)(iv) of this section).
(3) S corporations and S corporation shareholders—(i) In general. Rules similar to those
contained in paragraphs (c)(2) (i) and (ii) of this section apply in the case of S corporations (as defined
in section 1361(a)) and their shareholders. Each shareholder's share of the taxable income of an S
corporation is determined under section 1366.
(ii) Taxable income of an S corporation. The taxable income (or loss) derived from the active
conduct by an S corporation of any trade or business is computed by aggregating the net income (or
loss) from all of the trades or businesses actively conducted by the S corporation during the taxable
year. The net income (or loss) from a trade or business actively conducted by an S corporation is
determined by taking into account the aggregate amount of the S corporation's items described in
section 1366(a) (other than credits, tax-exempt income, and deductions for compensation paid to an S
corporation's shareholder-employees) derived from that trade or business. For purposes of
determining the aggregate amount of S corporation items, deductions and losses are treated as
negative income. Any limitation on the amount of an S corporation item described in section 1366(a)
which may be taken into account for purposes of computing the taxable income of a shareholder shall
be disregarded in computing the taxable income of the S corporation.

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(iii) Shareholder's share of S corporation taxable income. Rules similar to those contained in
paragraph (c)(2)(v) and (c)(6)(ii) of this section apply to a taxpayer who is a shareholder in an S
corporation and is engaged in the active conduct of the S corporation's trades or businesses.
(4) Taxable income of a corporation other than an S corporation. The aggregate amount of
taxable income derived from the active conduct by a corporation other than an S corporation of any
trade or business is the amount of the corporation's taxable income before deducting its net operating
loss deduction and special deductions (as reported on the corporation's income tax return), adjusted to
reflect those items of income or deduction included in that amount that were not derived by the
corporation from a trade or business actively conducted by the corporation during the taxable year.
(5) Ordering rule for certain circular problems—(i) In general. A taxpayer who elects to expense
the cost of section 179 property (the deduction of which is subject to the taxable income limitation)
also may have to apply another Internal Revenue Code section that has a limitation based on the
taxpayer's taxable income. Except as provided in paragraph (c)(1) of this section, this section provides
rules for applying the taxable income limitation under section 179 in such a case. First, taxable income
is computed for the other section of the Internal Revenue Code. In computing the taxable income of
the taxpayer for the other section of the Internal Revenue Code, the taxpayer's section 179 deduction
is computed by assuming that the taxpayer's taxable income is determined without regard to the
deduction under the other Internal Revenue Code section. Next, after reducing taxable income by the
amount of the section 179 deduction so computed, a hypothetical amount of deduction is determined
for the other section of the Internal Revenue Code. The taxable income limitation of the taxpayer
under section 179(b)(3) and this paragraph (c) then is computed by including that hypothetical amount
in determining taxable income.
(ii) Example. The following example illustrates the ordering rule described in paragraph (c)(5)(i) of
this section.
Example. X, a calendar-year corporation, elects to expense $10,000 of the cost of section 179 property
purchased and placed in service during 1991. Assume X's dollar limitation is $10,000. X also gives a charitable
contribution of $5,000 during the taxable year. X's taxable income for purposes of both sections 179 and 170(b)
(2), but without regard to any deduction allowable under either section 179 or section 170, is $11,000. In
determining X's taxable income limitation under section 179(b)(3) and this paragraph (c), X must first compute its
section 170 deduction. However, section 170(b)(2) limits X's charitable contribution to 10 percent of its taxable
income determined by taking into account its section 179 deduction. Paragraph (c)(5)(i) of this section provides
that in determining X's section 179 deduction for 1991, X first computes a hypothetical section 170 deduction by
assuming that its section 179 deduction is not affected by the section 170 deduction. Thus, in computing X's
hypothetical section 170 deduction, X's taxable income limitation under section 179 is $11,000 and its section
179 deduction is $10,000. X's hypothetical section 170 deduction is $100 (10 percent of $1,000 ($11,000 less
$10,000 section 179 deduction)). X's taxable income limitation for section 179 purposes is then computed by
deducting the hypothetical charitable contribution of $100 for 1991. Thus, X's section 179 taxable income
limitation is $10,900 ($11,000 less hypothetical $100 section 170 deduction), and its section 179 deduction for
1991 is $10,000. X's section 179 deduction so calculated applies for all purposes of the Code, including the
computation of its actual section 170 deduction.

(6) Active conduct by the taxpayer of a trade or business—(i) Trade or business. For purposes of
this section and §1.179-4(a), the term trade or business has the same meaning as in section 162 and
the regulations thereunder. Thus, property held merely for the production of income or used in an
activity not engaged in for profit (as described in section 183) does not qualify as section 179 property
and taxable income derived from property held for the production of income or from an activity not
engaged in for profit is not taken into account in determining the taxable income limitation.
(ii) Active conduct. For purposes of this section, the determination of whether a trade or business
is actively conducted by the taxpayer is to be made from all the facts and circumstances and is to be
applied in light of the purpose of the active conduct requirement of section 179(b)(3)(A). In the context
of section 179, the purpose of the active conduct requirement is to prevent a passive investor in a
trade or business from deducting section 179 expenses against taxable income derived from that trade
or business. Consistent with this purpose, a taxpayer generally is considered to actively conduct a
trade or business if the taxpayer meaningfully participates in the management or operations of the
trade or business. Generally, a partner is considered to actively conduct a trade or business of the

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partnership if the partner meaningfully participates in the management or operations of the trade or
business. A mere passive investor in a trade or business does not actively conduct the trade or
business.
(iii) Example. The following example illustrates the provisions of paragraph (c)(6)(ii) of this section.
Example. A owns a salon as a sole proprietorship and employs B to operate it. A periodically meets with B
to review developments relating to the business. A also approves the salon's annual budget that is prepared by
B. B performs all the necessary operating functions, including hiring beauticians, acquiring the necessary beauty
supplies, and writing the checks to pay all bills and the beauticians' salaries. In 1991, B purchased, as provided
for in the salon's annual budget, equipment costing $9,500 for use in the active conduct of the salon. There were
no other purchases of section 179 property during 1991. A's net income from the salon, before any section 179
deduction, totaled $8,000. A also is a partner in PRS, a calendar-year partnership, which owns a grocery store.
C, a partner in PRS, runs the grocery store for the partnership, making all the management and operating
decisions. PRS did not purchase any section 179 property during 1991. A's allocable share of partnership net
income was $6,000. Based on the facts and circumstances, A meaningfully participates in the management of
the salon. However, A does not meaningfully participate in the management or operations of the trade or
business of PRS. Under section 179(b)(3)(A) and this paragraph (c), A's aggregate taxable income derived from
the active conduct by A of any trade or business is $8,000, the net income from the salon.

(iv) Employees. For purposes of this section, employees are considered to be engaged in the
active conduct of the trade or business of their employment. Thus, wages, salaries, tips, and other
compensation (not reduced by unreimbursed employee business expenses) derived by a taxpayer as
an employee are included in the aggregate amount of taxable income of the taxpayer under paragraph
(c)(1) of this section.
(7) Joint returns—(i) In general. The taxable income limitation of this paragraph (c) is applied to a
husband and wife who file a joint income tax return under section 6013(a) by aggregating the taxable
income of each spouse (as determined under paragraph (c)(1) of this section).
(ii) Joint returns filed after separate returns. In the case of a husband and wife who elect under
section 6013(b) to file a joint income tax return for a taxable year after the time prescribed by law for
filing the return for such taxable year, the taxable income limitation of this paragraph (c) for the taxable
year for which the joint return is filed is determined under paragraph (c)(7)(i) of this section.
(8) Married individuals filing separately. In the case of an individual who is married but files a
separate tax return for a taxable year, the taxable income limitation for that individual is determined
under paragraph (c)(1) of this section by treating the husband and wife as separate taxpayers.
(d) Examples. The following examples illustrate the provisions of paragraphs (b) and (c) of this
section.
Example 1. (i) During 1991, PRS, a calendar-year partnership, purchases and places in service $50,000 of
section 179 property. The taxable income of PRS derived from the active conduct of all its trades or businesses
(as determined under paragraph (c)(1) of this section) is $8,000.

(ii) Under the dollar limitation of paragraph (b) of this section, PRS may elect to expense $10,000
of the cost of section 179 property purchased in 1991. Assume PRS elects under section 179(c) and
§1.179-5 to expense $10,000 of the cost of section 179 property purchased in 1991.
(iii) Under the taxable income limitation of paragraph (c) of this section, PRS may allocate to its
partners as a deduction only $8,000 of the cost of section 179 property in 1991. Under section 179(b)
(3)(B) and §1.179-3(a), PRS may carry forward the remaining $2,000 it elected to expense, which
would have been deductible under section 179(a) for 1991 absent the taxable income limitation.
Example 2. (i) The facts are the same as in Example 1, except that on December 31, 1991, PRS allocates to
A, a calendar-year taxpayer and a partner in PRS, $7,000 of section 179 expenses and $2,000 of taxable
income. A was engaged in the active conduct of a trade or business of PRS during 1991.

(ii) In addition to being a partner in PRS, A conducts a business as a sole proprietor. During 1991,
A purchases and places in service $201,000 of section 179 property in connection with the sole
proprietorship. A's 1991 taxable income derived from the active conduct of this business is $6,000.

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(iii) Under the dollar limitation, A may elect to expense only $9,000 of the cost of section 179
property purchased in 1991, the $10,000 limit reduced by $1,000 (the amount by which the cost of
section 179 property placed in service during 1991 ($201,000) exceeds $200,000). Under paragraph
(b)(3)(i) of this section, the $7,000 of section 179 expenses allocated from PRS is subject to the
$9,000 limit. Assume that A elects to expense $2,000 of the cost of section 179 property purchased by
A's sole proprietorship in 1991. Thus, A has elected to expense under section 179 an amount equal to
the dollar limitation for 1991 ($2,000 elected to be expensed by A's sole proprietorship plus $7,000,
the amount of PRS's section 179 expenses allocated to A in 1991).
(iv) Under the taxable income limitation, A may only deduct $8,000 of the cost of section 179
property elected to be expensed in 1991, the aggregate taxable income derived from the active
conduct of A's trades or businesses in 1991 ($2,000 from PRS and $6,000 from A's sole
proprietorship). The entire $2,000 of taxable income allocated from PRS is included by A as taxable
income derived from the active conduct by A of a trade or business because it was derived from the
active conduct of a trade or business by PRS and A was engaged in the active conduct of a trade or
business of PRS during 1991. Under section 179(b)(3)(B) and §1.179-3(a), A may carry forward the
remaining $1,000 A elected to expense, which would have been deductible under section 179(a) for
1991 absent the taxable income limitation.
[T.D. 8455, 57 FR 61318, Dec. 24, 1992, as amended by T.D. 9146, 69 FR 46983, Aug. 4, 2004; T.D. 9209, 70
FR 40191, July 13, 2005]

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of November 29, 2013
Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)
§1.179-3 Carryover of disallowed deduction.
(a) In general. Under section 179(b)(3)(B), a taxpayer may carry forward for an unlimited number
of years the amount of any cost of section 179 property elected to be expensed in a taxable year but
disallowed as a deduction in that taxable year because of the taxable income limitation of section 179
(b)(3)(A) and §1.179-2(c) (“carryover of disallowed deduction”). This carryover of disallowed deduction
may be deducted under section 179(a) and §1.179-1(a) in a future taxable year as provided in
paragraph (b) of this section.
(b) Deduction of carryover of disallowed deduction—(1) In general. The amount allowable as a
deduction under section 179(a) and §1.179-1(a) for any taxable year is increased by the lesser of—
(i) The aggregate amount disallowed under section 179(b)(3)(A) and §1.179-2(c) for all prior
taxable years (to the extent not previously allowed as a deduction by reason of this section); or
(ii) The amount of any unused section 179 expense allowance for the taxable year (as described
in paragraph (c) of this section).
(2) Cross references. See paragraph (f) of this section for rules that apply when a taxpayer
disposes of or otherwise transfers section 179 property for which a carryover of disallowed deduction
is outstanding. See paragraph (g) of this section for special rules that apply to partnerships and S
corporations and paragraph (h) of this section for special rules that apply to partners and S corporation
shareholders.
(c) Unused section 179 expense allowance. The amount of any unused section 179 expense
allowance for a taxable year equals the excess (if any) of—
(1) The maximum cost of section 179 property that the taxpayer may deduct under section 179
and §1.179-1 for the taxable year after applying the limitations of section 179(b) and §1.179-2; over
(2) The amount of section 179 property that the taxpayer actually elected to expense under
section 179 and §1.179-1(a) for the taxable year.
(d) Example. The following example illustrates the provisions of paragraphs (b) and (c) of this
section.
Example. A, a calendar-year taxpayer, has a $3,000 carryover of disallowed deduction for an item of section
179 property purchased and placed in service in 1991. In 1992, A purchases and places in service an item of
section 179 property costing $25,000. A's 1992 taxable income from the active conduct of all A's trades or
businesses is $100,000. A elects, under section 179(c) and §1.179-5, to expense $8,000 of the cost of the item
of section 179 property purchased in 1992. Under paragraph (b) of this section, A may deduct $2,000 of A's
carryover of disallowed deduction from 1991 (the lesser of A's total outstanding carryover of disallowed
deductions ($3,000), or the amount of any unused section 179 expense allowance for 1992 ($10,000 limit less
$8,000 elected to be expensed, or $2,000)). For 1993, A has a $1,000 carryover of disallowed deduction for the
item of section 179 property purchased and placed in service in 1991.

(e) Recordkeeping requirement and ordering rule. The properties and the apportionment of cost
that will be subject to a carryover of disallowed deduction are selected by the taxpayer in the year the

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properties are placed in service. This selection must be evidenced on the taxpayer's books and
records and be applied consistently in subsequent years. If no selection is made, the total carryover of
disallowed deduction is apportioned equally over the items of section 179 property elected to be
expensed for the taxable year. For this purpose, the taxpayer treats any section 179 expense amount
allocated from a partnership (or an S corporation) for a taxable year as one item of section 179
property. If the taxpayer is allowed to deduct a portion of the total carryover of disallowed deduction
under paragraph (b) of this section, the taxpayer must deduct the cost of section 179 property carried
forward from the earliest taxable year.
(f) Dispositions and other transfers of section 179 property—(1) In general. Upon a sale or other
disposition of section 179 property, or a transfer of section 179 property in a transaction in which gain
or loss is not recognized in whole or in part (including transfers at death), immediately before the
transfer the adjusted basis of the section 179 property is increased by the amount of any outstanding
carryover of disallowed deduction with respect to the property. This carryover of disallowed deduction
is not available as a deduction to the transferor or the transferee of the section 179 property.
(2) Recapture under section 179(d)(10). Under §1.179-1(e), if a taxpayer's section 179 property is
subject to recapture under section 179(d)(10), the taxpayer must recapture the benefit derived from
expensing the property. Upon recapture, any outstanding carryover of disallowed deduction with
respect to the property is no longer available for expensing. In determining the amount subject to
recapture under section 179(d)(10) and §1.179-1(e), any outstanding carryover of disallowed
deduction with respect to that property is not treated as an amount expensed under section 179.
(g) Special rules for partnerships and S corporations—(1) In general. Under section 179(d)(8) and
§1.179-2(c), the taxable income limitation applies at the partnership level as well as at the partner
level. Therefore, a partnership may have a carryover of disallowed deduction with respect to the cost
of its section 179 property. Similar rules apply to S corporations. This paragraph (g) provides special
rules that apply when a partnership or an S corporation has a carryover of disallowed deduction.
(2) Basis adjustment. Under §1.179-1(f)(2), the basis of a partnership's section 179 property must
be reduced to reflect the amount of section 179 expense elected by the partnership. This reduction
must be made for the taxable year for which the election is made even if the section 179 expense
amount, or a portion thereof, must be carried forward by the partnership. Similar rules apply to S
corporations.
(3) Dispositions and other transfers of section 179 property by a partnership or an S corporation.
The provisions of paragraph (f) of this section apply in determining the treatment of any outstanding
carryover of disallowed deduction with respect to section 179 property disposed of, or transferred in a
nonrecognition transaction, by a partnership or an S corporation.
(4) Example. The following example illustrates the provisions of this paragraph (g).
Example. ABC, a calendar-year partnership, owns and operates a restaurant business. During 1992, ABC
purchases and places in service two items of section 179 property—a cash register costing $4,000 and office
furniture costing $6,000. ABC elects to expense under section 179(c) the full cost of the cash register and the
office furniture. For 1992, ABC has $6,000 of taxable income derived from the active conduct of its restaurant
business. Therefore, ABC may deduct only $6,000 of section 179 expenses and must carry forward the
remaining $4,000 of section 179 expenses at the partnership level. ABC must reduce the adjusted basis of the
section 179 property by the full amount elected to be expensed. However, ABC may not allocate to its partners
any portion of the carryover of disallowed deduction until ABC is able to deduct it under paragraph (b) of this
section.

(h) Special rules for partners and S corporation shareholders—(1) In general. Under section 179
(d)(8) and §1.179-2(c), a partner may have a carryover of disallowed deduction with respect to the
cost of section 179 property elected to be expensed by the partnership and allocated to the partner. A
partner who is allocated section 179 expenses from a partnership must reduce the basis of his or her
partnership interest by the full amount allocated regardless of whether the partner may deduct for the
taxable year the allocated section 179 expenses or is required to carry forward all or a portion of the
expenses. Similar rules apply to S corporation shareholders.

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(2) Dispositions and other transfers of a partner's interest in a partnership or a shareholder's
interest in an S corporation. A partner who disposes of a partnership interest, or transfers a
partnership interest in a transaction in which gain or loss is not recognized in whole or in part
(including transfers of a partnership interest at death), may have an outstanding carryover of
disallowed deduction of section 179 expenses allocated from the partnership. In such a case,
immediately before the transfer the partner's basis in the partnership interest is increased by the
amount of the partner's outstanding carryover of disallowed deduction with respect to the partnership
interest. This carryover of disallowed deduction is not available as a deduction to the transferor or
transferee partner of the section 179 property. Similar rules apply to S corporation shareholders.
(3) Examples. The following examples illustrate the provisions of this paragraph (h).
Example 1. (i) G is a general partner in GD, a calendar-year partnership, and is engaged in the active
conduct of GD's business. During 1991, GD purchases and places section 179 property in service and elects to
expense a portion of the cost of the property under section 179. GD allocates $2,500 of section 179 expenses
and $15,000 of taxable income (determined without regard to the section 179 deduction) to G. The income was
derived from the active conduct by GD of a trade or business.

(ii) In addition to being a partner in GD, G conducts a business as a sole proprietor. During 1991,
G purchases and places in service office equipment costing $25,000 and a computer costing $10,000
in connection with the sole proprietorship. G elects under section 179(c) and §1.179-5 to expense
$7,500 of the cost of the office equipment. G has a taxable loss (determined without regard to the
section 179 deduction) derived from the active conduct of this business of $12,500.
(iii) G has no other taxable income (or loss) derived from the active conduct of a trade or business
during 1991. G's taxable income limitation for 1991 is $2,500 ($15,000 taxable income allocated from
GD less $12,500 taxable loss from the sole proprietorship). Therefore, G may deduct during 1991 only
$2,500 of the $10,000 of section 179 expenses. G notes on the appropriate books and records that G
expenses the $2,500 of section 179 expenses allocated from GD and carries forward the $7,500 of
section 179 expenses with respect to the office equipment purchased by G's sole proprietorship.
(iv) On January 1, 1992, G sells the office equipment G's sole proprietorship purchased and
placed in service in 1991. Under paragraph (f) of this section, immediately before the sale G increases
the adjusted basis of the office equipment by $7,500, the amount of the outstanding carryover of
disallowed deduction with respect to the office equipment.
Example 2. (i) Assume the same facts as in Example 1, except that G notes on the appropriate books and
records that G expenses $2,500 of section 179 expenses relating to G's sole proprietorship and carries forward
the remaining $5,000 of section 179 expenses relating to G's sole proprietorship and $2,500 of section 179
expenses allocated from GD.

(ii) On January 1, 1992, G sells G's partnership interest to A. Under paragraph (h)(2) of this
section, immediately before the sale G increases the adjusted basis of G's partnership interest by
$2,500, the amount of the outstanding carryover of disallowed deduction with respect to the
partnership interest.
[T.D. 8455, 57 FR 61321, Dec. 24, 1992]

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of May 21, 2014
Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)
§1.179-4 Definitions.
The following definitions apply for purposes of section 179 and §§1.179-1 through 1.179-6:
(a) Section 179 property. The term section 179 property means any tangible property described in
section 179(d)(1) that is acquired by purchase for use in the active conduct of the taxpayer's trade or
business (as described in §1.179-2(c)(6)). For taxable years beginning after 2002 and before 2008,
the term section 179 property includes computer software described in section 179(d)(1) that is placed
in service by the taxpayer in a taxable year beginning after 2002 and before 2008 and is acquired by
purchase for use in the active conduct of the taxpayer's trade or business (as described in 1.179-2(c)
(6)). For purposes of this paragraph (a), the term trade or business has the same meaning as in
section 162 and the regulations under section 162.
(b) Section 38 property. The term section 38 property shall have the same meaning assigned to it
in section 48(a) and the regulations thereunder.
(c) Purchase. (1)(i) Except as otherwise provided in paragraph (d)(2) of this section, the term
purchase means any acquisition of the property, but only if all the requirements of paragraphs (c)(1)
(ii), (iii), and (iv) of this section are satisfied.
(ii) Property is not acquired by purchase if it is acquired from a person whose relationship to the
person acquiring it would result in the disallowance of losses under section 267 or 707(b). The
property is considered not acquired by purchase only to the extent that losses would be disallowed
under section 267 or 707(b). Thus, for example, if property is purchased by a husband and wife jointly
from the husband's father, the property will be treated as not acquired by purchase only to the extent
of the husband's interest in the property. However, in applying the rules of section 267 (b) and (c) for
this purpose, section 267(c)(4) shall be treated as providing that the family of an individual will include
only his spouse, ancestors, and lineal descendants. For example, a purchase of property from a
corporation by a taxpayer who owns, directly or indirectly, more than 50 percent in value of the
outstanding stock of such corporation does not qualify as a purchase under section 179(d)(2); nor
does the purchase of property by a husband from his wife. However, the purchase of section 179
property by a taxpayer from his brother or sister does qualify as a purchase for purposes of section
179(d)(2).
(iii) The property is not acquired by purchase if acquired from a component member of a
controlled group of corporations (as defined in paragraph (g) of this section) by another component
member of the same group.
(iv) The property is not acquired by purchase if the basis of the property in the hands of the
person acquiring it is determined in whole or in part by reference to the adjusted basis of such property
in the hands of the person from whom acquired, or is determined under section 1014(a), relating to
property acquired from a decedent. For example, property acquired by gift or bequest does not qualify
as property acquired by purchase for purposes of section 179(d)(2); nor does property received in a
corporate distribution the basis of which is determined under section 301(d)(2)(B), property acquired
by a corporation in a transaction to which section 351 applies, property acquired by a partnership

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through contribution (section 723), or property received in a partnership distribution which has a
carryover basis under section 732(a)(1).
(2) Property deemed to have been acquired by a new target corporation as a result of a section
338 election (relating to certain stock purchases treated as asset acquisitions) will be considered
acquired by purchase.
(d) Cost. The cost of section 179 property does not include so much of the basis of such property
as is determined by reference to the basis of other property held at any time by the taxpayer. For
example, X Corporation purchases a new drill press costing $10,000 in November 1984 which
qualifies as section 179 property, and is granted a trade-in allowance of $2,000 on its old drill press.
The old drill press had a basis of $1,200. Under the provisions of sections 1012 and 1031(d), the basis
of the new drill press is $9,200 ($1,200 basis of oil drill press plus cash expended of $8,000).
However, only $8,000 of the basis of the new drill press qualifies as cost for purposes of the section
179 expense deduction; the remaining $1,200 is not part of the cost because it is determined by
reference to the basis of the old drill press.
(e) Placed in service. The term placed in service means the time that property is first placed by
the taxpayer in a condition or state of readiness and availability for a specifically assigned function,
whether for use in a trade or business, for the production of income, in a tax-exempt activity, or in a
personal activity. See §1.46-3(d)(2) for examples regarding when property shall be considered in a
condition or state of readiness and availability for a specifically assigned function.
(f) Controlled group of corporations and component member of controlled group. The terms
controlled group of corporations and component member of a controlled group of corporations shall
have the same meaning assigned to those terms in section 1563 (a) and (b), except that the phrase
“more than 50 percent” shall be substituted for the phrase “at least 80 percent” each place it appears
in section 1563(a)(1).
[T.D. 8121, 52 FR 413, Jan. 6, 1987. Redesignated by T.D. 8455, 57 FR 61321, 61323, Dec. 24, 1992, as
amended by T.D. 9146, 69 FR 46984, Aug. 4, 2004; T.D. 9209, 70 FR 40191, July 13, 2005]

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of November 29, 2013
Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)
§1.179-5 Time and manner of making election.
(a) Election. A separate election must be made for each taxable year in which a section 179
expense deduction is claimed with respect to section 179 property. The election under section 179 and
§1.179-1 to claim a section 179 expense deduction for section 179 property shall be made on the
taxpayer's first income tax return for the taxable year to which the election applies (whether or not the
return is timely) or on an amended return filed within the time prescribed by law (including extensions)
for filing the return for such taxable year. The election shall be made by showing as a separate item on
the taxpayer's income tax return the following items:
(1) The total section 179 expense deduction claimed with respect to all section 179 property
selected, and
(2) The portion of that deduction allocable to each specific item.
The person shall maintain records which permit specific identification of each piece of section 179
property and reflect how and from whom such property was acquired and when such property was
placed in service. However, for this purpose a partner (or an S corporation shareholder) treats
partnership (or S corporation) section 179 property for which section 179 expenses are allocated from
a partnership (or an S corporation) as one item of section 179 property. The election to claim a section
179 expense deduction under this section, with respect to any property, is irrevocable and will be
binding on the taxpayer with respect to such property for the taxable year for which the election is
made and for all subsequent taxable years, unless the Commissioner consents to the revocation of the
election. Similarly, the selection of section 179 property by the taxpayer to be subject to the expense
deduction and apportionment scheme must be adhered to in computing the taxpayer's taxable income
for the taxable year for which the election is made and for all subsequent taxable years, unless
consent to change is given by the Commissioner.
(b) Revocation. Any election made under section 179, and any specification contained in such
election, may not be revoked except with the consent of the Commissioner. Such consent will be
granted only in extraordinary circumstances. Requests for consent must be filed with the
Commissioner of Internal Revenue, Washington, DC 20224. The request must include the name,
address, and taxpayer identification number of the taxpayer and must be signed by the taxpayer or his
duly authorized representative. It must be accompanied by a statement showing the year and property
involved, and must set forth in detail the reasons for the request.
(c) Section 179 property placed in service by the taxpayer in a taxable year beginning after 2002
and before 2008—(1) In general. For any taxable year beginning after 2002 and before 2008, a
taxpayer is permitted to make or revoke an election under section 179 without the consent of the
Commissioner on an amended Federal tax return for that taxable year. This amended return must be
filed within the time prescribed by law for filing an amended return for such taxable year.
(2) Election—(i) In general. For any taxable year beginning after 2002 and before 2008, a
taxpayer is permitted to make an election under section 179 on an amended Federal tax return for that
taxable year without the consent of the Commissioner. Thus, the election under section 179 and
§1.179-1 to claim a section 179 expense deduction for section 179 property may be made on an

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amended Federal tax return for the taxable year to which the election applies. The amended Federal
tax return must include the adjustment to taxable income for the section 179 election and any
collateral adjustments to taxable income or to the tax liability (for example, the amount of depreciation
allowed or allowable in that taxable year for the item of section 179 property to which the election
pertains). Such adjustments must also be made on amended Federal tax returns for any affected
succeeding taxable years.
(ii) Specifications of elections. Any election under section 179 must specify the items of section
179 property and the portion of the cost of each such item to be taken into account under section 179
(a). Any election under section 179 must comply with the specification requirements of section 179(c)
(1)(A), §1.179-1(b), and §1.179-5(a). If a taxpayer elects to expense only a portion of the cost basis of
an item of section 179 property for a taxable year beginning after 2002 and before 2008 (or did not
elect to expense any portion of the cost basis of the item of section 179 property), the taxpayer is
permitted to file an amended Federal tax return for that particular taxable year and increase the portion
of the cost of the item of section 179 property to be taken into account under section 179(a) (or elect to
expense any portion of the cost basis of the item of section 179 property if no prior election was made)
without the consent of the Commissioner. Any such increase in the amount expensed under section
179 is not deemed to be a revocation of the prior election for that particular taxable year.
(3) Revocation—(i) In general. Section 179(c)(2) permits the revocation of an entire election or
specification, or a portion of the selected dollar amount of a specification. The term specification in
section 179(c)(2) refers to both the selected specific item of section 179 property subject to a section
179 election and the selected dollar amount allocable to the specific item of section 179 property. Any
portion of the cost basis of an item of section 179 property subject to an election under section 179 for
a taxable year beginning after 2002 and before 2008 may be revoked by the taxpayer without the
consent of the Commissioner by filing an amended Federal tax return for that particular taxable year.
The amended Federal tax return must include the adjustment to taxable income for the section 179
revocation and any collateral adjustments to taxable income or to the tax liability (for example,
allowable depreciation in that taxable year for the item of section 179 property to which the revocation
pertains). Such adjustments must also be made on amended Federal tax returns for any affected
succeeding taxable years. Reducing or eliminating a specified dollar amount for any item of section
179 property with respect to any taxable year beginning after 2002 and before 2008 results in a
revocation of that specified dollar amount.
(ii) Effect of revocation. Such revocation, once made, shall be irrevocable. If the selected dollar
amount reflects the entire cost of the item of section 179 property subject to the section 179 election, a
revocation of the entire selected dollar amount is treated as a revocation of the section 179 election for
that item of section 179 property and the taxpayer is unable to make a new section 179 election with
respect to that item of property. If the selected dollar amount is a portion of the cost of the item of
section 179 property, revocation of a selected dollar amount shall be treated as a revocation of only
that selected dollar amount. The revoked dollars cannot be the subject of a new section 179 election
for the same item of property.
(4) Examples. The following examples illustrate the rules of this paragraph (c):
Example 1. Taxpayer, a sole proprietor, owns and operates a jewelry store. During 2003, Taxpayer
purchased and placed in service two items of section 179 property—a cash register costing $4,000 (5-year
MACRS property) and office furniture costing $10,000 (7-year MACRS property). On his 2003 Federal tax return
filed on April 15, 2004, Taxpayer elected to expense under section 179 the full cost of the cash register and, with
respect to the office furniture, claimed the depreciation allowable. In November 2004, Taxpayer determines it
would have been more advantageous to have made an election under section 179 to expense the full cost of the
office furniture rather than the cash register. Pursuant to paragraph (c)(1) of this section, Taxpayer is permitted
to file an amended Federal tax return for 2003 revoking the section 179 election for the cash register, claiming
the depreciation allowable in 2003 for the cash register, and making an election to expense under section 179
the cost of the office furniture. The amended return must include an adjustment for the depreciation previously
claimed in 2003 for the office furniture, an adjustment for the depreciation allowable in 2003 for the cash register,
and any other collateral adjustments to taxable income or to the tax liability. In addition, once Taxpayer revokes
the section 179 election for the entire cost basis of the cash register, Taxpayer can no longer expense under
section 179 any portion of the cost of the cash register.

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Example 2. Taxpayer, a sole proprietor, owns and operates a machine shop that does specialized repair
work on industrial equipment. During 2003, Taxpayer purchased and placed in service one item of section 179
property—a milling machine costing $135,000. On Taxpayer's 2003 Federal tax return filed on April 15, 2004,
Taxpayer elected to expense under section 179 $5,000 of the cost of the milling machine and claimed allowable
depreciation on the remaining cost. Subsequently, Taxpayer determines it would have been to Taxpayer's
advantage to have elected to expense $100,000 of the cost of the milling machine on Taxpayer's 2003 Federal
tax return. In November 2004, Taxpayer files an amended Federal tax return for 2003, increasing the amount of
the cost of the milling machine that is to be taken into account under section 179(a) to $100,000, decreasing the
depreciation allowable in 2003 for the milling machine, and making any other collateral adjustments to taxable
income or to the tax liability. Pursuant to paragraph (c)(2)(ii) of this section, increasing the amount of the cost of
the milling machine to be taken into account under section 179(a) supplements the portion of the cost of the
milling machine that was already taken into account by the original section 179 election made on the 2003
Federal tax return and no revocation of any specification with respect to the milling machine has occurred.
Example 3. Taxpayer, a sole proprietor, owns and operates a real estate brokerage business located in a
rented storefront office. During 2003, Taxpayer purchases and places in service two items of section 179
property—a laptop computer costing $2,500 and a desktop computer costing $1,500. On Taxpayer's 2003
Federal tax return filed on April 15, 2004, Taxpayer elected to expense under section 179 the full cost of the
laptop computer and the full cost of the desktop computer. Subsequently, Taxpayer determines it would have
been to Taxpayer's advantage to have originally elected to expense under section 179 only $1,500 of the cost of
the laptop computer on Taxpayer's 2003 Federal tax return. In November 2004, Taxpayer files an amended
Federal tax return for 2003 reducing the amount of the cost of the laptop computer that was taken into account
under section 179(a) to $1,500, claiming the depreciation allowable in 2003 on the remaining cost of $1,000 for
that item, and making any other collateral adjustments to taxable income or to the tax liability. Pursuant to
paragraph (c)(3)(ii) of this section, the $1,000 reduction represents a revocation of a portion of the selected dollar
amount and no portion of those revoked dollars may be the subject of a new section 179 election for the laptop
computer.
Example 4. Taxpayer, a sole proprietor, owns and operates a furniture making business. During 2003,
Taxpayer purchases and places in service one item of section 179 property—an industrial-grade cabinet table
saw costing $5,000. On Taxpayer's 2003 Federal tax return filed on April 15, 2004, Taxpayer elected to expense
under section 179 $3,000 of the cost of the saw and, with respect to the remaining $2,000 of the cost of the saw,
claimed the depreciation allowable. In November 2004, Taxpayer files an amended Federal tax return for 2003
revoking the selected $3,000 amount for the saw, claiming the depreciation allowable in 2003 on the $3,000 cost
of the saw, and making any other collateral adjustments to taxable income or to the tax liability. Subsequently, in
December 2004, Taxpayer files a second amended Federal tax return for 2003 selecting a new dollar amount of
$2,000 for the saw, including an adjustment for the depreciation previously claimed in 2003 on the $2,000, and
making any other collateral adjustments to taxable income or to the tax liability. Pursuant to paragraph (c)(2)(ii)
of this section, Taxpayer is permitted to select a new selected dollar amount to expense under section 179
encompassing all or a part of the initially non-elected portion of the cost of the elected item of section 179
property. However, no portion of the revoked $3,000 may be the subject of a new section 179 dollar amount
selection for the saw. In December 2005, Taxpayer files a third amended Federal tax return for 2003 revoking
the entire selected $2,000 amount with respect to the saw, claiming the depreciation allowable in 2003 for the
$2,000, and making any other collateral adjustments to taxable income or to the tax liability. Because Taxpayer
elected to expense, and subsequently revoke, the entire cost basis of the saw, the section 179 election for the
saw has been revoked and Taxpayer is unable to make a new section 179 election with respect to the saw.

(d) Election or revocation must not be made in any other manner. Any election or revocation
specified in this section must be made in the manner prescribed in paragraphs (a), (b), and (c) of this
section. Thus, this election or revocation must not be made by the taxpayer in any other manner (for
example, an election or a revocation of an election cannot be made through a request under section
446(e) to change the taxpayer's method of accounting), except as otherwise expressly provided by the
Internal Revenue Code, the regulations under the Code, or other guidance published in the Internal
Revenue Bulletin.
[T.D. 8121, 52 FR 414, Jan. 6, 1987. Redesignated by T.D. 8455, 57 FR 61321, 61323, Dec. 24, 1992, as
amended by T.D. 9146, 69 FR 46984, Aug. 4, 2004; T.D. 9209, 70 FR 40191, July 13, 2005]

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ELECTRONIC CODE OF FEDERAL REGULATIONS
e-CFR Data is current as of May 21, 2014
Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)
§1.179-6 Effective dates.
(a) In general. Except as provided in paragraphs (b) and (c) of this section, the provisions of
§§1.179-1 through 1.179-5 apply for property placed in service by the taxpayer in taxable years ending
after January 25, 1993. However, a taxpayer may apply the provisions of §§1.179-1 through 1.179-5 to
property placed in service by the taxpayer after December 31, 1986, in taxable years ending on or
before January 25, 1993. Otherwise, for property placed in service by the taxpayer after December 31,
1986, in taxable years ending on or before January 25, 1993, the final regulations under section 179
as in effect for the year the property was placed in service apply, except to the extent modified by the
changes made to section 179 by the Tax Reform Act of 1986 (100 Stat. 2085), the Technical and
Miscellaneous Revenue Act of 1988 (102 Stat. 3342) and the Revenue Reconciliation Act of 1990
(104 Stat. 1388-400). For that property, a taxpayer may apply any reasonable method that clearly
reflects income in applying the changes to section 179, provided the taxpayer consistently applies the
method to the property.
(b) Section 179 property placed in service by the taxpayer in a taxable year beginning after 2002
and before 2008. The provisions of §1.179-2(b)(1) and (b)(2)(ii), the second sentence of §1.179-4(a),
and the provisions of §1.179-5(c), reflecting changes made to section 179 by the Jobs and Growth Tax
Relief Reconciliation Act of 2003 (117 Stat. 752) and the American Jobs Creation Act of 2004 (118
Stat. 1418), apply for property placed in service in taxable years beginning after 2002 and before
2008.
(c) Application of §1.179-5(d). Section 1.179-5(d) applies on or after July 12, 2005.
[T.D. 9146, 69 FR 46985, Aug. 4, 2004. Redesignated and amended by T.D. 9209, 70 FR 40192, July 13, 2005]

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