Section 179 Amendments
Section 179 Amendments
Since 2008, various Stimulus Acts and Tax Bills have greatly affected Section 179 creating opportunities for businesses to leverage equipment and vehicle financing for tax advantages. These numerous amendments have time-bound validity, some for a specific year, while others extend to future years or retroactively revise previous years’ limits. As always, we’ll provide the latest information on any and all amendments and stimulus acts impacting Section 179.
Section 179 Before Stimulus Acts – A Glimpse Into History
Prior to the Stimulus Act in 2008, Section 179 allowed for businesses to deduct up to $125,000 on qualifying equipment – and the deduction began to phase out for companies that spent over $500,000, 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, Section 179 has proven very popular, and over the years Section 179 has 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.
The Stimulus Acts
Let’s walk through the significant Stimulus Acts enacted over the years, and understand the impact each had on Section 179 and Bonus Depreciation.
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.
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.
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.
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.
The fifth 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 Depreciation is only available on new equipment (used equipment did not qualify).
This was a big relief for everyone, because Section 179 rolled back to $25,000 for the entirety of 2012. However, this bill retroactively raised the limit for 2012 to the “new normal” of $500,000, capped spending at 2 million, and brought back the bonus 50% depreciation. And, of course, it kept these limits for 2013.
Again in 2014, Section 179 was allowed to drop back to $25,000, with a spending cap of $250,000, and no bonus depreciation. It stayed there almost the entire year, until Congress passed the above-named bill in late December of 2014. This raised section 179 back to $500,000 for the entirety of 2014, brought back the two million dollar spending cap, and the 50% bonus depreciation.
Once again, in 2015, Section 179 was allowed to drop back to $25,000, with a spending cap of $250,000, and no bonus depreciation. It stayed there almost the entire year, until Congress passed the above-named bill in late December of 2015. This raised section 179 back to $500,000 for the entirety of 2014, brought back the two million dollar spending cap, and the 50% bonus depreciation. Absolute carbon copy of the prior year! The big difference is the Section 179 limit of $500,000 was finally made permanent. So no more “dropping back” every year.
On December 22, 2017, President Trump signed into law H.R.1, aka, The Tax Cuts and Jobs Act. This act is responsible for many sweeping changes to taxes for both businesses and individuals, and also positively affected Section 179. The deduction limit for Section 179 increased to $1,000,000 for 2018 and beyond, and the cap on equipment purchases was increased to $2.5 million. In addition, some additional qualifying property was added, notably improvements to existing nonresidential property, such as roofs; heating, air-conditioning, and ventilation systems; fire protection, alarm, and security systems. The bonus depreciation was also expanded to 100%, and includes used equipment for the first time.
How your business could benefit from all these Stimulus Acts
The specific impact these Stimulus Acts have had on the Section 179 deduction is related to the dollar limits of the deduction. The most recent Stimulus Acts have raised the limits significantly.
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
2014 Deduction Limit: $500,000
2015 Deduction Limit: $500,000
2016 Deduction Limit: $500,000
2017 Deduction Limit: $510,000
2007 Total Amount of Equipment: $500,000
2008/2009 Total Amount of Equipment: $800,000
2010 – 2017 Total Amount of Equipment: $2,000,000
Another change that the ‘Economic Stimulus Act of 2008’ brought to Section 179 was it offered a one-time “bonus first year depreciation” on qualifying equipment. The Tax Relief Act of 2010 temporarily increased Bonus Depreciation to 100% of new equipment cost. Until the final two weeks of 2015, Bonus Depreciation had been eliminated – but the PATH Act reinstated Bonus Depreciation to 50% of new equipment cost through the 2017 tax year. Most recently, the Tax Cuts and Jobs Act increased Bonus Depreciation to 100% for 2018.
This Bonus Depreciation is utilized after the Section 179 deduction limit is reached. In other words, if you buy enough equipment to exceed the deduction, you can take a “bonus” depreciation on the rest.
Most small and medium-sized businesses have found these dollar limits generous indeed. The Economic Stimulus Acts significantly helped many small businesses by actually lowering the cost of equipment they need to purchase, finance or lease to run their day-to-day operations and empower businesses to grow and thrive.
If you’re a small business and want to take advantage of the Section 179 write-off for this tax year, you need to act before the end of this year.