When Can Section 179 Be Used?

Section 179 deductions can be elected in the same year that the equipment is purchased. Even though the deductions have been available for several years, the American Recovery and Reinvestment Act extended the increased deductions available in Section 179 through 2010. The maximum deduction is expected to revert back to $125,00 after 2010.

One of the best features of this deduction is that you do not have to make the full payment before December 31st 2009, so you can opt for an equipment lease or business loan. Also, 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.

When Must You Recapture the Deduction?

You may have to recapture the section 179 deduction if, in any year during the property’s recovery period, the percentage of business use drops to 50% or less. You also increase the basis of the property by the recapture amount. If you sell, exchange or dispose of the property, the IRS requires that the rules for recapturing depreciation are applied, which can be found here .

Revoking an election

An election (or any specification made in the election) to take a section 179 deduction for 2008 can be revoked without IRS approval by filing an amended return. The amended return must be filed within the time prescribed by law. The amended return must also include any resulting adjustments to taxable income. Once made, the revocation is irrevocable.