If you are an eligible taxpayer, you can deduct all or part of the cost of certain qualifying property in the tax year that you place the property in service, rather than depreciating the property over time.
This so-called Section 179 expensing provides two important benefits for small businesses:
(1) First, it lowers the Cost of Capital for property used in a trade or business.
(2) Second, it Eliminates Depreciation Recordkeeping Requirements with respect to expensed property.
Individuals, S corporations, C corporations, and partnerships are eligible to make the Section 179 election. Estates, trusts, and certain noncorporate lessors are not eligible.
To qualify for the Section 179 election, the property must be eligible property that you acquired by purchase for business use. In general, qualifying property is depreciable tangible personal property that is purchased for use in the active conduct of a trade or business. Qualifying property also includes off-the-shelf computer software and certain qualified real property. Passenger automobiles subject to the “luxury car” depreciation limitation are eligible for Section 179 expensing only to the extent of certain dollar limitations. For sport utility vehicles above the 6,000 pound weight rating and not more than the 14,000 pound weight rating, which are not subject to the luxury car limitation, the maximum cost that may be expensed for any tax year under Section 179 is $25,000.
For property placed in service after December 31, 2017, the definition of qualifying property was expanded to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. It was also expanded to include the following improvements to nonresidential real property property placed in service after the date such property was first placed in service: roofs, heating ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.
The amount of the Section 179 deduction is generally the cost of the property for which the election is made. However, the maximum deductible amount is subject to certain limitations, including a dollar limitation and a taxable income limitation. The maximum Section 179 amount that is deductible for property placed in service after December 31, 2017, and before January 1, 2018, is $510,000, while the maximum deductible amount for property placed in service after December 31, 2017, is $1 million. However, this amount is reduced on a dollar-for-dollar basis (but not below zero) by any amount by which the cost of Section 179 property placed in service during the year exceeds $2,030,000 for property placed in service after December 31, 2016, and before January 1, 2018, and $2.5 million for property placed in serviced after December 31, 2017, and before January 1, 2019. The $1 million and $2.5 million are adjusted for inflation after 2018.
Under another special rule, a $25,000 deduction limit applies to certain heavy sport utility vehicles or certain other vehicles placed in service during the tax year. This amount is also adjusted for inflation after 2018.
After applying the dollar limitation, you must also apply a taxable income limitation. The total cost of Section 179 property that you can deduct each year is limited to your taxable income from the active conduct of any trade or business during the year. Any cost not deductible in a tax year because of this taxable income limitation can be carried over for deduction in later years.
The Section 179 election must be made on an original or amended income tax return for the tax year in which the property is placed in service. In some cases, you may have to recapture as income amounts you deducted under the Section 179 election.
Please call me at your convenience so that we can discuss the Section 179 expensing election as it applies to your particular situation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 05182021-1 320-355)