What is the Section 179 Deduction?

Section 179 of the US internal revenue code allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service.

For tax years beginning after 2017, the TCJA increased the maximum Section 179 expense deduction from $500,000 to $1 million.

The phase-out limit increased from $2 million to $2.5 million.

How does Section 179 work?

Section 179 works as an immediate expense deduction, meaning that businesses can deduct the full purchase price of qualifying equipment (e.g., vehicles, computers) and software purchased or financed during the tax year.

This deduction is available for both new and used equipment, and it can be applied to a wide range of business-related assets, including:

  • Machinery
  • Equipment
  • Vehicles
  • Furniture
  • Computers
  • Software

To qualify for the Section 179 deduction, the equipment must be purchased and placed into service between January 1st and December 31st of the same tax year.

The Section 179 deduction can only be taken on equipment that is used for business purposes.

To calculate the amount, multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business use to arrive at the monetary amount eligible for Section 179.

 

Section 179 example

For example, let’s say your business purchased $50,000 of computer equipment in 2020.

You would be able to take the full Section 179 deduction of $50,000 on your taxes for that year, as long as the equipment was used for business purposes.

If you only use the equipment for 50 percent business purposes, you would be able to deduct $25,000.

 

Section 179 – FAQs

Does my vehicle qualify for Section 179 deduction?

To qualify for Section 179, your vehicle must be used over 50 percent for business purposes.

The IRS considers a vehicle to be anything that can transport people or property.

This includes passenger cars, light trucks (weigh 6,000 pounds or less), and SUVs that are used more than 50 percent for business purposes.

How do I know if my equipment qualifies for Section 179 deduction?

To qualify for Section 179, the equipment must be new or used, and it must be purchased or financed during the tax year.

It must also be used for business purposes more than 50 percent of the time.

If you’re not sure whether your equipment qualifies, you can check with the IRS Section 179 deduction calculator.

When can I take the Section 179 deduction?

You can take the Section 179 deduction when you purchase or finance equipment and put it into service between January 1st and December 31st of the same tax year.

What is the maximum amount I can deduct under Section 179?

For tax years beginning after 2017 (2018 and beyond), the Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, increased the maximum Section 179 expense deduction from $500,000 to $1 million.

The phase-out limit increased from $2 million to $2.5 million.

This means that businesses can deduct up to $1 million of qualifying capital expenditures, with a phase-out starting once they reach $2.5 million.

How do I claim the Section 179 deduction?

To claim the Section 179 deduction, you’ll need to file Form 4562 with your tax return.

If you’re not sure how to complete Form 4562, you can check out the instructions on the IRS website.

You can also consult with a tax professional to ensure that you’re taking advantage of all the deductions and credits you’re eligible for.

 

Summary – Section 179

Section 179 of the US Internal Revenue Code allows businesses to deduct certain property expenses as an expense when the property is placed in service. The Tax Cuts and Jobs Act (TCJA) increased the maximum Section 179 expense deduction from $500,000 to $1 million for tax years beginning after 2017.

Section 179 can be a great way for small businesses to save money on their taxes. Be sure to consult with a tax professional to see if your business qualifies and how much you can deduct.

 

 

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