The section 179 deduction for partnership or S corporation is limited at two levels. The first level must be reached before the second will apply.
First, the partnership or S corporation can only take Section 179 to the extent it does not create an operating loss. If the election does create a loss, the amount by which it does so is available for use in future years.
The second level where it is limited is at the partner or shareholder level. At this level, Section 179 is limited to the amount of taxable income from all businesses in which the taxpayer has an interest. An individual’s W-2 income is considered to be income from a business. The basis for this is that the individual’s W-2 income is similar to business income.