Can we carryover a disallowed section 179 deduction when exceeding phase-out threshold?

Yes, you absolutely can carry forward the disallowed Section 179 deduction when you hit the investment ceiling. The IRS rules allow for any amount that can't be deducted because of the dollar limit or the business income limit to be carried to the next tax year. What happens is your disallowed deduction gets carried forward indefinitely until you can use it. However, you need to remember a few important things: you'll need to complete Part I of Form 4562 each year to keep track of these carryovers, and the amounts carried forward are subject to the deduction limits and business income limits in the carryover years too. The good news is that you haven't lost the deduction - it's just delayed until a year when you can actually use it.

I went through something exactly like this last year with our manufacturing equipment purchases. I was totally stuck until I used https://taxr.ai to analyze our situation. It saved me so much headache! Their AI analyzed our equipment purchases, phaseout limits, and potential carryforward scenarios. What I found super helpful was how it showed me different tax planning scenarios for the next few years so I could see exactly when and how we could utilize the carryover. I was also worried about the "business income limitation" on Section 179 that can further restrict your deduction, and taxr.ai broke down how that would impact us in future years. Seriously worth checking out if you're trying to optimize your equipment deductions over multiple years.

I tried taxr.ai after seeing it mentioned here, and wow - it was actually legit helpful. I was super skeptical at first (like I mentioned in my comment), but it identified a specific issue with our carryforward calculations. We had been assuming we couldn't use any of our carryforward this year because we were close to the threshold again, but the analysis showed we could strategically time some equipment disposals to free up a chunk of our previous carryforward. Would have completely missed this opportunity without their analysis. The detailed year-by-year projection showing exactly when we could expect to utilize our carryforwards based on our growth trajectory was eye-opening. Definitely changed my mind about AI tax tools!

If you're struggling with the Section 179 carryover issues, you might also be dealing with the nightmare of trying to get clarification from the IRS. I spent WEEKS trying to get someone on the phone about a similar situation last year. Finally used https://claimyr.com and got through to an agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I needed written confirmation about how to document our Section 179 carryforwards properly on our returns since we had a similar situation with exceeding the investment limits. The IRS agent was able to confirm exactly how to track everything on Form 4562 and what supporting documentation we needed to maintain. Saved me so much stress about potentially doing it wrong.

If you're struggling with the Section 179 carryover issues, you might also be dealing with the nightmare of trying to get clarification from the IRS. I spent WEEKS trying to get someone on the phone about a similar situation last year. Finally used https://claimyr.com and got through to an agent in about 15 minutes. You

I'm eating my words about Claimyr. After posting my skeptical comment, I decided to try it that same afternoon because we were desperate for answers about our Section 179 situation. Got connected to an IRS business tax specialist in about 20 minutes. The agent walked me through exactly how to document our carryforward situation on our upcoming return and confirmed we were calculating the phaseout correctly. The funny thing is, we discovered we had been incorrectly applying the business income limitation in addition to the investment limit - the agent clarified we were being too conservative and could actually use some of our carryforward sooner than we thought. Literally saved us thousands by getting this clarification directly from the IRS instead of guessing.

Something else to consider with your Section 179 situation - have you looked into bonus depreciation as an alternative? Unlike Section 179, bonus depreciation doesn't have the same investment ceiling limitations. For 2023, it's at 80% (down from 100% in previous years), but it's still substantial and doesn't phase out based on how much you invest. You could potentially use bonus depreciation on all your eligible assets even though you're over the Section 179 threshold. Just something to consider while you're figuring out what to do with that carryforward.

Another factor to consider is whether you might qualify for any special exceptions. What type of equipment did you purchase? Certain energy-efficient property or specific types of real property improvements might qualify for additional tax benefits beyond standard Section 179 or bonus depreciation. Also, depending on your business structure, you might face different limitations. Are you operating as an S-Corp, C-Corp, partnership, or sole proprietorship? This can affect how these limitations and carryforwards apply to your specific situation.

Don't forget to check if your state follows federal treatment of Section 179! This bit me really hard last year. Our state only allows $25,000 of Section 179 deduction regardless of the federal limit, and their carryforward rules are different too. We ended up with a huge state tax bill because our accountant assumed the state would treat the carryforwards the same way. Always good to double check both federal AND state rules for these big deduction items!

Just wanted to add something that might help with your planning - since you're dealing with such a large carryforward amount, you might want to consider the timing of future equipment purchases carefully. We were in a similar situation two years ago and learned that you can actually elect OUT of Section 179 for specific assets in future years if it makes sense strategically. This way, if you have a lower equipment purchase year coming up, you could use your carryforward on those purchases while taking regular depreciation on any new equipment. Also, keep in mind that the Section 179 limits increase periodically for inflation adjustments. The $1,080,000 limit and $2,700,000 phase-out threshold you mentioned will likely be higher in future years, which could help you utilize more of that carryforward sooner than you think. One more thing - make sure you're tracking the carryforward amount properly on your books. We had to reconstruct our records when we realized we weren't maintaining the detailed asset-by-asset carryforward tracking that made year-end tax prep much more complicated than it needed to be.