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.

Equipment limitations

There are a few limitations to be aware of when considering the Section 179 equipment deduction. This equipment is not eligible:

Time Limitations

While Section 179 has existed for a few years now, the dollar amount of equipment that can be deducted from year to year changes. One benefit of the economic stimulus act is enhancements to Section 179 that allow for higher dollar limitations for equipment purchased before December 31, 2009.

Dollar Limitations

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 much you can save.

These limits can apply to each taxpayer so to understand further be sure to review details on the IRS website or with your tax professional.