Section 179 eligible equipment

Section 179 Is Now Permanent – What That Means for Small Businesses

In December 2015, Congress passed a wide reaching $1.8 trillion spending bill. Included in this bill was the permanent extension of the Section 179 deduction allowing $500,000 of asset acquisitions, that would normally be capitalized, to be expensed in the year of purchase. This tax provision is intended to make business acquisitions of machinery and equipment more affordable, allowing small businesses to grow more quickly.


A short history of Section 179

Section 179, allows small businesses to deduct the full cost of specific types of business-use equipment in the year of purchase as an expense, instead of it being capitalized and depreciated over the full life of the asset.

Originally this deduction was capped at $25,000 of eligible expenses. Starting in 2003, Congress began raising the limit, however this temporary increase required yearly authorization with a penalty of reverting back to the original $25,000 limit. The new bill establishes a permanent limit of $500,000 for business-use equipment, approval from Congress is no longer required.

How Section 179 works

A Section 179 deduction reduces taxable income, and it also makes tax preparation easier by reducing the need to record depreciation. A business with less than $2 million in purchases (the benefit is phased out between $2 million and $2.5 million) in the year can elect to expense up to $500,000 of business use equipment, such as computers, printer, machinery and large vehicles to reduce taxable income. The irrevocable Section 179 election is eligible in the year the equipment is purchased and used.

A business is eligible for the deduction if the business-use equipment is used in an income producing business. It is important to note that a limited number of assets are not eligible (e.g. land, inventory and assets used outside of the United States).

How it can Help Your Business

The deduction allows small businesses to directly invest their profits back into the business to accelerate growth. If the assets purchased qualify for the deduction, a tax election can be made to recover all or part of the cost of the qualifying property, up to the $500,000 limit, by deducting the equipment cost in the year you place the property in service. This election, the Section 179 deduction, expedites depreciation of the equipment in lieu of recovering the cost through depreciation deductions over the life of the assets.

Do you want to understand how this deduction could help your business? Need to know purchases you made in 2015 will qualify for Section 179? Contact us, we can help you navigate all aspects of the deduction.

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