What is Section 179?

Section 179 is the Internal Revenue Service (IRS) tax code which allows individuals or businesses to fully deduct certain assets (usually equipment and software). This incentive was created by the IRS to encourage business to buy machinery and equipment for their business and take a full tax deduction in the year it’s placed in service. This has been very important for many construction or manufacturing companies and other industries which require large, expensive machinery in the course of the business. If any asset is not eligible for Section 179, it may still be available for bonus depreciation or regular depreciation. Certain limitations are also put in place in the type of assets and amount that can be expensed on the tax return.

Qualifying Property

Section 179 was created for business so most business equipment qualify for Section 179. All business that use equipment for their business such as machinery, computers, furniture, software, vehicles greater than 6,000lbs and other business assets are eligible for a 100% deduction under Section 179. If you have purchases or financed any assets for your business, you consider Section 179 deduction. In order to take the deduction, the asset must have been purchased and placed in service during the tax year.

Property not qualified for Section 179

Although most business assets will qualify for Section 179, some assets such as real property is not eligible for a Section 179 deduction. Real property is defined as land, buildings, permanent fixtures and other improvements to real property. Any property that is not eligible for Section 179 may still be available for capitalization and depreciation. Bonus depreciation is available for these assets as an accelerated depreciation method.

Vehicles under 6,000lbs also do not qualify for section 179 deduction. When section 179 was originally introduced, SUV’s were acceptable for a full Section 179 deduction, however this loop-hole created many business purchases of Hummers and other expensive luxurious SUV’s for a full tax deduction.

LimitationsThere are different limitations to Section 179. The maximum amount that can be deduction for most section 179 assets is 510,000. This limitation is also reduced by the amount of the assets the exceeded $2,030,000 (for 2017).

Form 4562

If your business qualifies for a Section 179 deduction, a Form 4652 must be completed and filed with your annual tax return. The Form 4562 is required for all depreciation and amortization deduction expenses on the tax return. In Part I of the Form 4562, you will list the cost of the asset and calculate the Section 179 deduction you are eligible for. The Form 4562 must be filed with your business or individual tax return.

Summary

Section 179 has helped many businesses for numerous years and it’s still available for tax year 2017. Many businesses rely on this code section to relieve the tax burden during tax years where large equipment is purchased, financed or leased and placed in service during the tax year. The Section 179 limitations vary by year so be sure to check the IRS.gov website for the deduction limits during the tax year you are filing for.