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*** Important Update for the 2013 Tax Year ***

Jan 2, 2013 - Section 179 limits for the year 2013 were increased by the 'American Taxpayer Relief Act' which allows businesses to write-off up to $500,000 of qualified capital expenditures subject to a dollar-for-dollar phase-out once these expenditures exceed $2,000,000 in the 2013 tax year.

Bonus Depreciation was also reinstated to 50% by the 'American Taxpayer Relief Act' which allows larger businesses that exceed the $2,000,000 cap to write-off 50% of qualified assets using first year Bonus Depreciation. Also, small businesses that are not profitable in 2013 can use 50% Bonus Depreciation (on new equipment only) and carry-forward the loss to future profitable years.

This should mean a substantial boost to your bottom line this year. But, to get the deduction for tax year 2013, you have to act this year, as once the clock strikes midnight on December 31, 2013; Section 179 can't increase your 2013 profits anymore.

Impact of the various Stimulus Acts on Section 179

In 2007, prior to the initial Stimulus Act, Section 179 allowed for businesses to expense up to $125,000 on qualifying equipment - and the deduction began to phase out for companies that spent over $500,000 in that 2007 tax year, truly making it a small business tax incentive.

At that time, Section 179 was slated to wind down in future years with reduced deduction limits. And eventually, Section 179 was to be eliminated completely. However, over the last few years Section 179 has garnered much attention and gone through numerous enhancements via multiple Stimulus Acts designed to give businesses of all sizes incentive to invest in themselves by purchasing, financing or leasing new equipment and software.

Following are the various Stimulus Acts, as well as an explanation of the impact each had on Section 179 and Bonus Depreciation.

'Economic Stimulus Act of 2008' (signed 02-13-2008)

In order to address concerns regarding a slowing economy, President Bush asked Congress to come up with an Economic Stimulus Plan that would benefit both consumers and businesses, and Congress responded with a comprehensive economic stimulus package. On February 13, 2008, President Bush signed H.R. 5140, otherwise known as the 'Economic Stimulus Act of 2008'.

That initial economic stimulus act immediately grabbed headlines because most Americans would receive a check for $600 from Uncle Sam. There were significant benefits in the 'Economic Stimulus Act of 2008' for businesses too. Most importantly, the Section 179 Deduction limits were generously increased, and small businesses across the country reaped the rewards.

The previous $125,000 limit on the Section 179 Deduction was increased to $250,000 - and the $500,000 limit on the total amount of equipment purchased became $800,000. In addition, the Act provided for ‘50% Bonus Depreciation’ which allowed businesses to recover the costs of capital expenditures faster than ordinary depreciation by permitting businesses to immediately write-off 50% of the cost of depreciable property above the Section 179 Deduction limits.

'American Recovery and Reinvestment Act of 2009' (signed 02-17-2009)

One year, almost to the day, after the initial economic stimulus act was signed, President Obama signed H.R. 1, otherwise known as ‘ARRA’. That new stimulus act also garnered headlines as an unprecedented spending bill totaling $787 billion intended to jump-start a stagnated economy. 'ARRA of 2009' did include a few tax incentives for businesses – essentially extending some of the temporary tax benefits of the 'Economic Stimulus Act of 2008'.

The increased amount that a business could write-off for capital expenditures of $250,000 along with the increased phase-out threshold of $800,000 was extended for tax year 2009. Additionally, the 50% Bonus Depreciation for expenditures above the Section 179 limits were also extended for 2009.

'Hiring Incentives to Restore Employment Act of 2010' (signed 03-18-2010)

The third economic stimulus act to impact Section 179 was H.R. 2847, otherwise known as the 'HIRE Act of 2010.' This act continued the maximum Section 179 deduction at the increased level of $250,000 for qualifying equipment and software placed in service for tax year 2010. Without the provision in the 'HIRE Act', the maximum Section 179 write-off would have fallen back to only $134,000 in 2010.

A notable element missing in the 'HIRE Act of 2010' was the 50% Bonus Depreciation – which had been available to large companies that spend more than the $800,000 threshold in 2008 and 2009, and this was initially not extended for the 2010 tax year.

'Small Business Jobs and Credit Act of 2010' (signed 09-27-2010)

The fourth economic stimulus act impacting Section 179 was H.R. 5297, otherwise referred to as the 'Jobs Act of 2010'. The act substantially increased the amount a business can write-off from $250,000 to $500,000 of qualified capital expenditures - subject to a phase-out once these expenditures exceed $2,000,000 - for tax years 2010 and 2011.

For those large businesses that exceed the $2 million cap, the 'Jobs Act of 2010' also extended the additional, first-year 50% Bonus Depreciation to qualifying property purchased and placed in service during the 2010 tax year. Again, it’s worth noting this Act did not extend 50% Bonus Depreciation for the following tax year 2011.

'Tax Relief, Unemployment Insurance Reauthorization, Job Creation Act'
(signed 12-17-2010)

The fifth and most recent economic stimulus act impacting section 179 is H.R. 4853, otherwise known as the 'Tax Relief Act of 2010'. This Act extended and expanded the Bonus Depreciation available to businesses spending more than $2 million on capital equipment to write-off 100% of the cost.

Some smaller businesses that were not profitable in 2011 could also use Bonus Depreciation because the loss created by the deduction could be carried forward into future years that the business might become profitable. One significant limitation on Bonus Depreciation in general is that Bonus Deprteciati is only available on new equipment (used equipment does not qualify).

How your business can benefit from all these Stimulus Acts

The Section 179 Deduction has been significantly enhanced for the tax year 2013, giving businesses an incentive to invest in themselves by purchasing, financing or leasing new equipment.

The specific impact these Stimulus Acts have had on the Section 179 deduction is related to the dollar limits of the deduction. The most current Stimulus Act raised these limits significantly. The new deduction limits are $500,000 on the deduction, and the total amount of equipment purchased can not exceed $2,000,000.

To recap the limits by tax year:

2007 Deduction Limit: $125,000
2008 Deduction Limit: $250,000
2009 Deduction Limit: $250,000
2010 Deduction Limit: $500,000
2011 Deduction Limit: $500,000
2012 Deduction Limit: $500,000
2013 Deduction Limit: $500,000

Deduction decreases dollar-for-dollar after totals reach the following:

2007 Total Amount of Equipment: $500,000
2008/2009 Total Amount of Equipment: $800,000
2010/2011/2013 Total Amount of Equipment: $2,000,000
Bonus Depreciation

Another change that the 'Economic Stimulus Act of 2008' brought to Section 179 is it offered a one-time “bonus first year depreciation” on qualifying equipment. The Tax Relief Act of 2010 increased Bonus Depreciation to 100% of new equipment cost. This is after the above deduction limit of $2 million in total equipment, vehicles, and/or software cost is reached.

In other words, if you buy enough equipment to exceed the $500,000 deduction, you can take a “bonus” 50% depreciation on the rest (see Section 179 Deduction Chart).

Everyone Benefits

Most small and medium-sized businesses find these new dollar limits generous indeed. The Economic Stimulus Acts may or may not have helped consumers, but the Acts continue to significantly help many small businesses by lowering the cost of equipment they need to purchase or lease to run their day-to-day operations. To see how much you could save in 2013, use this Section 179 Tax Calculator.

Act Now!

As of this writing, the 'Small Business Jobs and Credit Act of 2010' has extended the increased limits through the end of tax year 2013. Unless it is extended, the Section 179 Deduction phases out to an immaterial amount after 2013, so if you want to take advantage of the higher limits in the 2013 tax year, you need to act before the end of this year.

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This website was designed to answer your questions regarding the Section 179 Tax Deduction, and to explain the impact the various Stimulus Acts have had on Section 179. The information on this site will clearly explain the Section 179 Deduction in plain terms; will go over what property qualifies under Section 179 for the deduction; and will explore the myriad of ways the Section 179 deduction can impact your bottom line. In addition, there are IRS tax forms and also tools for you to use, such as the free Section 179 Deduction Calculator currently updated for the 2013 tax year.