Section 179 Expensing
Named after the tax-law code section that authorizes this business tax-deduction benefit, Section 179 expensing is basically a super-fast form of . 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.1
Section 179 Property
Dollar Limits and Phaseouts
In any given , 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 2004 through 2015, lawmakers often retroactively passed a one or two-year tax extender that enabled Section 179 expensing.
The Protecting Americans from Tax Hikes (PATH) Act of 2015 made Section 179 expensing permanent.3 The maximum deduction is $500,000,4 with the phaseout starting at $2 million.5 Hence, the maximum of $500,000 is reduced to the extent that the total Section 179 property you place in service during the year exceeds $2 million.
Can't Produce a Tax Loss
You must use the property more than 50 percent for business throughout the property's entire “recovery period” in order to prevent recapture.7 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 $25,000.8 Furthermore, the limits on tax-defined “luxury” autos also apply to the Section 179 deduction.
1 IRC Section 179(a).
2 IRC Section 179(d)(1). Economic stimulus legislation temporarily added “qualified real property” to the definition of “Section 179 property” through 2011. “Qualified real property” includes qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. IRC Section 179(f), added by the Small Business Jobs Act of 2010, P.L. 111-240, Section 2021(b) (Sept. 27, 2010). The Tax Increase Prevention Act of 2014, P.L. 113-295 extended this provision through December 31, 2014.
3 Division Q of P.L. 114-113, PDF p. 800.
4 IRC Section 179(b)(1)(B).
5 IRC Section 179(b)(2)(B).
6 IRC Section 179(b)(3).
7 IRC Section 179(d)(10); Reg. Section 1.179-1(e).
8 IRC Section 179(b)(5).