FAQs - Section 179 Deduction & Bonus Depreciation
What is the Section 179 Deduction?
Section 179 of the IRS Tax Code allows a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction. The equipment purchased, financed 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 2014 this means the equipment must be put into service between 01/01/2014 and 12/31/2014.
Did the Stimulus Acts have an impact Section 179 for 2014?
The stimulus acts over the past several years have generously increased the limits of the Section 179 Deduction and also added a one-time "Bonus Depreciation" on equipment that exceeded the deduction limit. A total of five stimulus acts have extended and enhanced these tax incentives (see Stimulus Acts & Section 179)
All of the expanded limits of the stimulus acts as well as Bonus Depreciation expired as of 12/31/2013. However, your business can still write-off up to $25,000 in the 2104 tax year.
What's the difference between Section 179 and Bonus Depreciation?
The most important difference is both new and used equipment qualify for Section 179 Deduction, while Bonus Depreciation covers new equipment only. Bonus Depreciation is useful to very large businesses spending more than $560,000 on new capital equipment in 2013; also businesses with a net loss in 2013 qualify to carry-forward the Bonus Depreciation to a future year. When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation - unless the business has no taxable profit in 2013.
Can I lease (or finance) equipment and take the Section 179 Deduction?
Absolutely. In fact, this is 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 info 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 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 most recent stimulus acts were passed, the deduction limits became temporarily much higher. However, those limits were set to reduce and return to "normal" in future years. currently, for the 2014 tax year, your business may write-off a maximum of $25,000 in equipment and software purchased or financed.
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 $200,000 for 2014. This makes Section 179 a true "small 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 2014 tax year, the equipment must be purchased or leased and placed into service between January 1, 2014 and December 31, 2014.
Does the geographic area my business operates in make any difference in the Section 179 Deduction?
Perhaps. The IRS has identified several different areas of the country as special zones that qualify for an increased Section 179 Deduction. Some of the zones the IRS has identified include the New York Liberty Zone, Special Enterprise and Renewal Community Business Areas, and the Gulf Opportunity Zone. We have a page with more information regarding special Section 179 zones.
How can I calculate the potential savings that the Section 179 Deduction will have on my next purchase?
Here's a very easy-to-use Section 179 Deduction Calculator that will help you figure out your potential savings.
How can I elect the Section 179 Deduction?
To elect the Section 179 Deduction you need to fill out Part One of IRS form 4562 (available here). If you need help, your tax preparer will be able to help you elect the Section 179 Deduction.