FAQs for Section 179 Deduction
What is the Section 179 Deduction?
Section 179 of the IRS Tax Code allows a small business to deduct, for the current tax year, the full purchase price of financed or leased equipment that qualifies for the deduction. The equipment purchased or leased must be within the specified dollar limits of Section 179, and the equipment must be placed into service in the same tax year that the deduction is being taken (for tax year 2010, this means the equipment must be put into service between 01/01/2010 and 12/31/2010).
What impact did the 'Economic Stimulus Act of 2008' have on the Section 179 Deduction?
The 'Economic Stimulus Act of 2008' generously increased the limits of the Section 179 Deduction. The previous limits were $125,000 for the deduction and the total amount of equipment purchased or leased for the year had to be less then $500,000. The Stimulus Act of 2008 increased the deduction limit to $250,000, and now the total equipment purchased or leased needs to be less then $800,000. It also added a one-time "bonus depreciation" on equipment that exceeded the $250,000 deduction limit. See this page for the details regarding 'Section 179 and the Economic Stimulus Act of 2008'.
What impact did the 'American Recovery and Reinvestment Act of 2009' have on the Section 179 Deduction?
The 'American Recovery and Reinvestment Act of 2009' simply extends the above enhanced Section 179 incentives established for 2008 through December 31, 2009.
The 'Hiring Incentives to Restore Employment Act of 2010' continues to keep the maximum Section 179 tax deduction at $250,000 subject to a dollar-for-dollar phase-out limit beginning at $800,000 for the tax year 2010. Please note, the 'Hire Act of 2010' does not extend the "bonus depreciation" in the 'Economic Stimulus Act of 2008' described above.
Absolutely. In fact, this can be a very effective strategy, as the deduction you take may actually exceed the total loan or lease payments you make for the year. See this page for more information on equipment leasing and Section 179.
How do I know if the property I am purchasing or leasing qualifies for the Section 179 Deduction?
Most equipment that small businesses purchase or lease will qualify for the deduction. Please review the list of equipment that qualifies for the Section 179 Deduction.
What is the deduction limit for Section 179 Deductions?
After the 'Economic Stimulus Act of 2008' was passed, the new current deduction limit is $250,000 and the total amount of equipment purchased cannot exceed $800,000. These limits were set to return to "normal" for 2009 and 2010, but were extended until 12/31/2010 under the Recovery Act of 2009 and the HIRE Act of 2010 - so you may wish to take advantage of Section 179 now before the enhanced tax deductions expire.
Can I buy or lease a vehicle and take the Section 179 deduction?
It depends on the vehicle. Generally, the vehicle must have a gross vehicle weight (GVW) in excess of 6,000 lbs. Click here for more information regarding Section 179 and Vehicles.
Does the amount of equipment I purchase and lease in any one year matter?
Yes. The amount of equipment purchased and/or leased may not exceed $800,000 for 2010. Prior to the Stimulus Act of 2008, Recovery Act of 2009, and HIRE Act of 2010 the amount of equipment purchased or leased could not exceed $500,000. This makes Section 179 a true "small and medium" business deduction.
Does the date of my purchase have an impact on the Section 179 Deduction?
Yes. To qualify for the Section 179 deduction for the 2010 tax year, the equipment must be purchased or leased and placed into service between January 1, 2010 and December 31, 2010.
Deduct Equipment Purchases-Utilizing Section 179
The new Hiring Incentives to Restore Employment (HIRE) Act gives the tax go-ahead to deduct $250,000 of qualified buiness assets placed in service in tax years beginning in 2010. This Houston CPA teaches how to maximize this deduction to your full advantage whether you use borrowed money to make the purchases or make the purchases at the end of the year.
Small businesses should fully grasp how to utilize this tax break to their fullest advantage. A qualifying taxpayer can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property.
The $250,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $800,000