How Do I Use Section 179?

How Do You Elect The Deduction?

You elect to take the section 179 deduction by completing Part I of Form 4562 . As with all tax records, it is important to keep Section 179 related documentation that shows how you acquired the property, the person you acquired it from and when you placed it into service.

There are different rules for calculating deductions if you are married filing individually and depending on whether your business is a Partnership , S Corporation or other corporate entity.

Be aware that Estates and trusts cannot elect the section 179 deduction.

How Much Can you Deduct?

The economic stimulus act boosted the allowed deduction from $125,000 to $250,000. The incentives are designed to benefit small and medium sized businesses as there is a cap of $800,000 on the cost of equipment purchased. For every dollar spent on equipment above $800,000 the amount of the deduction is reduced by a dollar.

For example, if equipment is purchased for $825,000 the business can only deduct $225,000 from their gross income ($825,000 - $800,000 = $25,000, then $250,000 - $25,000 = $225,000). Use the Section 179 Calculator to find out how much you can save.

The amount of this deduction is not based on the number of days this equipment has been in service. So it’s never too late! You are entitled to the $250,000 deduction as long as you buy the equipment by December 31st.

All the limitations can be seen on the IRS web site.

Buying Vehicles

There are two general categories of vehicles that can be included in a Section 179 deduction.

The first is any vehicle used in a business that would not be considered a traditional passenger vehicle. Purchases of these traditional business vehicles fall under normal Section 179 guidelines. The IRS lays out specific descriptions you can use to determine if your purchase meets the business vehicle definition. In general, cargo vans and car rental/hotel shuttles fit this description.

The second category is any type of sport utility vehicle that is greater than 6,000 pounds but not more than 14,000 pounds of gross vehicle weight. Vehicles that fit this classification (and don’t meet the exclusion criteria, are limited to a $25,000 on their Section 179 deduction. An important note to vehicles in this category are that deduction limits may be reduced if the vehicle is used for business less than 100% of the time.

If you are currently looking for a vehicle for your business, view off lease and repossessed vehicles for sale at the Direct Capital eBay store.