Partnerships and Partners

The section 179 deduction limits apply both to the partnership and to each partner. The partnership determines its section 179 deduction subject to the limits. It then allocates the deduction among its partners.

Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.) to their nonpartnership section 179 costs and then applies the dollar limit to this total. To determine any reduction in the dollar limit for costs over $4,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. After the dollar limit (reduced for any nonpartnership section 179 costs over

$4,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit.

Partnership’s taxable income. For purposes of the business income limit, figure the partnership’s taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code.

Partner’s share of partnership’s taxable income. For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership’s trades or businesses includes their allocable share of taxable income derived from the partnership’s active conduct of any trade or business.

Example. In 2025, Beech Partnership placed in service section 179 property with a total cost of $4,050,000. The partnership must reduce its dollar limit by $50,000 ($4,050,000 − $4,000,000). Its maximum section 179 deduction is $2,450,000 ($2,500,000 − $50,000), and it elects to expense that amount. The partnership’s taxable income from the active conduct of all its trades or businesses for the year was $3,500,000, so it can deduct the full $2,450,000. It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners.

In addition to being a partner in Beech Partnership, Dean is also a partner in Cedar Partnership, which allocated to Dean a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. Dean also conducts a business as a sole proprietor and, in 2025, placed in service in that business qualifying section 179 property costing $55,000. Dean had a net loss of $5,000 from that business for the year.

Dean does not have to include section 179 partnership costs to figure any reduction in the dollar limit, so the total section 179 costs for the year are not more than $4,000,000 and the dollar limit is not reduced. Dean’s maximum section 179 deduction is $2,500,000. Dean elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of the sole proprietorship’s section 179 costs, and notes that information in the books and records. However, Dean’s deduction is limited to the business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership, minus $5,000 loss from Dean’s sole proprietorship). Dean carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2026. Dean allocates the carryover amount to the cost of section 179 property placed in service in Dean’s sole proprietorship, and notes that allocation in the books and records.

20 Chapter 2 Electing the Section 179 Deduction Publication 946 (2025)

Different tax years. For purposes of the business income limit, if the partner’s tax year and that of the partnership differ, the partner’s share of the partnership’s taxable income for a tax year is generally the partner’s distributive share for the partnership tax year that ends with or within the partner’s tax year.

Example. John and James Oak are equal partners in Oak Partnership. Oak Partnership uses a tax year ending January 31. John and James both use a tax year ending December 31. For its tax year ending January 31, 2025, Oak Partnership’s taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2024. John and James each include $40,000 (each partner’s entire share) of partnership taxable income in computing their business income limit for the 2025 tax year.

Adjustment of partner’s basis in partnership. A partner must reduce the basis of their partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. If the partner disposes of their partnership interest, the partner’s basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership.

Adjustment of partnership’s basis in section 179 property. The basis of a partnership’s section 179 property must be reduced by the section 179 deduction elected by the partnership. This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits.