Named after the tax-law code section that authorizes this business tax-deduction benefit, Section 179 expensing is basically a super-fast form of Depreciation. Under Section 179 you can to elect to treat the entire cost, up to certain limits, of “section 179 property” as a deductible expense in the year you place that property in service.
Use IRS Form 4562, “Depreciation and Amortization,” to make the election.
Section 179 Property
Most Tangible Property (other than buildings and their structural components) and off-the-shelf computer software that you buy for use in your business qualify for Section 179 expensing.
Dollar Limits and Phaseouts
In any given Tax Year, the total Section 179 deduction cannot exceed a specified maximum amount. Also, that maximum amount is reduced (“phased out”) to the extent that the total amount of Section 179 property you place in service during that tax year exceeds a specified phase-out threshold. These dollar limits and phaseout thresholds have varied in recent years because of economic stimulus legislation.
For taxable years beginning in 2011, 2012, 2013, and 2014, the maximum deduction is $500,000, with the phaseout starting at $2 million. Hence, in 2014, the maximum of $500,000 is reduced to the extent that the total Section 179 property you place in service during 2014 exceeds $2 million.
In 2015 and later years, the maximum deduction is $25,000, with the phaseout starting at $200,000. It’s possible that lawmakers will increase the deductions as they done since 2010.
Can't Produce a Tax Loss
Your Section 179 deduction cannot exceed your Taxable Income (computed without taking Section 179 into account) from your business or businesses, but the unused amount can generally be carried over to later years.
You must use the property more than 50 percent for business throughout the property's entire “recovery period” in order to prevent recapture. Recapture basically means paying back a pro rata portion of your original tax savings in the year that your business use drops to 50 percent or less. The “recovery period” is the time during which you would have depreciated the property if you had not elected Section 179 expensing.
Limits on “Luxury” Autos and SUVs
The Section 179 deduction for tax-defined sport utility vehicles (SUVs) is $25,000. Furthermore, the limits on tax-defined “luxury” autos also apply to the Section 179 deduction. See our free resource, Luxury Auto Limits, Tables and Explanations.
For articles in our Tax Reduction Letter (subscription required) on strategies for maximizing the benefit of Section 179, click on Section 179 in our Browse By Topic finding tool.