First, §179 election can be made up to $125,000 in 2007 (it will be raised to $250,000 in 2008), on investments that do not exceed $500,000. If you placed more assets in service then the amount is reduced.
The election is made based on the assets placed in service.
The ability to utilize the write-out created by the election is a separate question and is determined based on the entity that made the election and if it is a pass-through entity than it is based on both the entity that made the election and the pass-through entity.
If the entity that made the election had a loss before ever using one dollar of the §179 election, then I`d advise the owner of that entity to find a new tax accountant, because it would be extremely rare and unusual for it to be worthwhile to take the election. If the entity that made the election had income then the election can bring the entity`s profit down to zero, but cannot create a loss - the difference would be carried forward to the next year. I do not have time to go through all the other possible situations at this time.
Depreciation is considered a complex part of the tax code, especially for new businesses. This is true not only because of the special elections which can be made, such as §179 expense, but also because you need to compute your depreciation for AMT and potentially ACE as well. If you`d like to start learning more about depreciation please refer to IRS Publication 946, How to Depreciation Property, but please keep in mind that publications are not always updated with the most recent tax law changes in a timely manner; thus you should also look at the last revision date and then search the IRS website for updates since that date.
Gina L. Gwozdz, CPA