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What Is Section 179?
“Section 179” refers to Section 179 of the Internal Revenue Service Tax code. Instead of depreciating newly acquired equipment over several years, Section 179 allows a business to take a current year deduction on the equipment purchase. It is important to understand the details behind the tax code to take full advantage of the available incentives.
Eligible Equipment
As long as it is tangible personal property, most equipment can be deducted through Section 179. Some common examples include:
It is also possible to deduct the cost of equipment that is used for both business and personal use as long as the business use makes up more than 50% of the total.
There are a few limitations to be aware of when considering the Section 179 equipment deduction. This equipment is not eligible:
- Equipment that is acquired by gift or inherited.
- Land and improvements
- Air conditioning and heating units
- Generally, any property leased to someone else. Corporations are exempt from this limitation and there are a few other exceptions to this rule detailed here .
- Generally, any property used to furnish lodging. There are a few exceptions to this rule detailed here .
Limits of Section 179 (updated as of Sep 27, 2010)
Section 179 does come with limits - there are caps to the total amount written off ($500,000 in 2010), and limits to the total amount of the equipment purchased ($2,000,000 in 2010.) The deduction begins to phase out dollar-for-dollar after $2 million, so this makes it a true small and medium-sized business deduction.
After the very recent passage of the 'Small Business Jobs and Credit Act of 2010', businesses that exceed the $2 million in capital expenditure threshold can take a bonus depreciation of 50% on the amount that exceeds the limit. And then also take normal depreciation on the rest. Nice. ("Bonus Depreciation" didn't make it into the 'HIRE Act of 2010' but did make it in the 'Small Business Jobs and Credit Act of 2010' extending "bonus depreciation" for the 2010 tax year - check back here often to stay posted on the latest legislative developments.)
Section 179's "More Than 50% Business-Use" Requirement
The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the $amount eligible for Section 179.
Who Qualifies for Section 179?
All businesses that purchase or finance less than $2,000,000 in business equipment during tax year 2010 should qualify for the Section 179 Deduction. In addition, most tangible goods (including "off-the-shelf" software) qualify for the Section 179 Deduction (see list of qualifying equipment). Also, to qualify for the Section 179 Deduction, the equipment purchased must be placed into service between January 1, 2010 and December 31, 2010.
The deduction begins to phase out if more than $2,000,000 of equipment is purchased - in fact, the deduction decreases on a dollar for dollar scale after that, making Section 179 a deduction specifically for small and medium-sized businesses.
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