Understanding Section 179 Deductions

If you buy certain types of assets such as vehicles, machines, or cameras for your business’s use, you will qualify for tax deductions. These deductions are applied over the life of the property that you purchased to help offset the decreasing value of the asset. This concept of depreciation of assets is covered under Section 179 of the IRS tax code. Understanding how this section works and the deductions related to depreciation in general can help keep you on the right side of the IRS.

Tax Cuts and Jobs Act of 2017

One important thing to be aware of is that the Tax Cuts and Jobs Act of 2017 expanded the benefits of Section 179 and extended it by several years. Prior to this new law, many of the benefits associated with claiming depreciation on your property were going to sunset over the next few years. Now, however, they are set to remain in place until 2023 with minimal changes, and they are not set to be phased out until 2027.

Deduction Limits

As of January 1st, 2018, a business is able to deduct as much as $1 million for each purchase of a piece of capital property, with a limit of $2.5 million total each year. These limits are indexed to inflation, so it’s likely the limits will be raised for the 2019 fiscal year. If you elect not to deduct the full value of property eligible for Section 179 deductions, you may usually depreciate the remainder.

Types of Qualifying Property

There are many types of property that qualify for this type of deduction. Being aware of what will and will not qualify helps to ensure you are able to take full advantage of the law. The following are some of the most common types of qualifying property under Section 179:

  • Purchases of Nonresidential Real Property
  • Improvements Made to Nonresidential Real Property
  • Vehicles
  • Video Equipment
  • Machinery
  • Tangible Personal Property that is Used for the Business
  • Office Furniture & Equipment
  • Computer Software

Bonus Depreciation

In addition to claiming the depreciation over time, it is now possible to claim “bonus depreciation” in the initial year after qualified property was purchased. With the passing of the Tax Cuts and Jobs Act, the amount of bonus depreciation goes up from 50% to 100% for qualified property purchases. This is a major improvement for businesses and can help them to save a lot of money on taxes if properly filed. When a purchase qualifies for both the section 179 and bonus depreciation, the business can decide which one will benefit them the most and opt for that one.

Careful Tax Decision

For more information on the new rules for depreciation and expensing under the Tax Cuts and Jobs Act, go to the IRS’ summary here.  

As with all tax related decisions, you will want to make sure you are careful to make the right decisions on how you will use the tax code. If you have found that previous decisions related to Section 179 or any other tax code have landed you in hot water with the IRS, please don’t hesitate to contact us for a free 15-minute consultation to discuss your situation and see if we can help.

Written by Robert V. Boeshaar

Robert V. Boeshaar

Robert V. Boeshaar is a Seattle tax attorney committed to helping individuals and small businesses who are facing problems with the IRS. He believes in using his experience to serve others and to make a difference in their lives.