This post is an updated version of last years post. Have you heard of the Section 179 tax deduction for businesses? If not, read on – you’ll like what you read!
How does Section 179 work?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying new and used equipment, vehicles (restrictions apply) and software purchased or financed during that tax year. This is especially beneficial for smaller businesses.
What are the limits of the Section 179 tax deduction?
1. 2019 Deduction Limit is $1,000,0002. 2019 Spending Cap on Equipment is $2,500,000
Basically, this deduction is good for equipment and off-the-shelf software bought and put into service between January 1, 2019 and December 31, 2019. The regulations allow a business to spend up to $2,500,000 before the Section 179 deduction is reduced on a dollar for dollar basis. Thus, the entire deduction goes away once $3,500,000 in purchases is reached. This favors small-to-medium sized businesses since larger enterprises that spend over the limit will not get the deduction.
Bonus Depreciation
In an ongoing effort to help small businesses, small business owners have also been allowed to claim first-year bonus depreciation for qualifying personal property used for business purposes. You can deduct a percentage of the cost of an asset in the first year it was purchased using bonus depreciation. And you can deduct the remaining cost over several years using regular depreciation or Section 179 expensing.
The Tax Cuts and Jobs Act, enacted at the end of 2018, increases first-year bonus depreciation to 100%. And is available on both new and now used property. It went into effect for any long-term assets placed in service after September 27, 2017. The 100% bonus depreciation amount remains in effect from September 27, 2017 until January 1, 2023. After that, first-year bonus depreciation goes down as follows:
- 80% for property placed in service after December 31, 2022 and before January 1,2024
- 60% for property placed in service after December 31, 2023 and before January 1, 2025
- 40% for property placed in service after December 31, 2024 and before January 1, 2026
- 20% for property placed in service after December 31, 2025 and before January 1, 2027
Section 179 bonus depreciation is optional – you don’t have to take it if you don’t want to. But if you want to get the largest depreciation deduction you can, you will want to take advantage of this option whenever possible. You can also use bonus depreciation to increase the amount of first-year depreciation available for business vehicles by $8,000.
A Few Conditions
It’s important to note that to qualify for the deduction, you must have used your listed property for business purposes more than 50% of the time. Listed property consists of automobiles and certain other personal property. Since the tax year 2018, computers are no longer classified as listed property. So there is no over 50% use requirement. Multiply the cost of these items by the percentage of business-use to arrive at the dollar amount eligible for Section 179.
Another piece of good news is that the Section 179 deduction works for leased equipment as well. Many businesses prefer leasing equipment and software with the allowable deduction as it assists with both cash flow and profits.
What is the bottom line? Act now! Section 179 can change from year to year without notice. Your business is unique, and we recommend you discuss Section 179 with your Certified Public Accountant. Or other competent tax professional as soon as possible.
Note: Information provided in this document is for illustrative purposes only. There is no guarantee of accuracy. Netsapiens and its owners, agents, employees, affiliates, suppliers, and partners are not tax advisors. This document is not intended to offer any tax advice. Please consult with qualified tax professionals concerning your specific situation.
