Software and Section 179

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Software and the Section 179 Deduction

An increasingly popular use of the IRS §179 Deduction is for software.

In general terms, “off-the-shelf” computer software that (a) is not custom designed, and (b) is available to the general public is qualified for the Section 179 Deduction in the year that you put the software into service. Further details below:

 

What Software Qualifies?

For basic eligibility, the software must meet all of the following general specifications:

·         The software must be purchased or financed with specific qualifying lease or loan.

·         The software must be used in your business for income-producing activity.

·         The software must have a determinable useful life.

·         The software must be expected to last more than one year.

In addition, these three specific stipulations must be met:

·         The software must be readily available for purchase by the general public.

·         The software must be subject to a non-exclusive license (e.g., it’s not just yours).

·         The software must not have been substantially modified.

What Software Doesn’t Qualify

Custom code – software that is written or highly customized for your company is not eligible.

Databases or similar are not considered deductible computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.

Websites are generally not eligible for Section 179. With the rise of online website builders, this may change, so be sure to check back or ask your accountant.