What is a Section 179 Deduction?
As stated on The Balance, Section 179 of the IRS Code was enacted to help small businesses by allowing them to take a depreciation deduction for certain assets (capital expenditures) in one year, rather than depreciating them over a longer period of time. Taking a deduction on an asset in its first year is called a “Section 179 deduction.” You can see that there is a benefit to taking the full deduction for the cost of the item immediately, rather than being required to spread out the deduction over the item’s useful life.
For example, if you buy a computer for your office, under Section 179 you can deduct the full cost of that computer in one year. This also makes sense, because we all know that computers have a short lifetime, or useful life.
So what types of business property does Section 179 apply to? The IRS has two general requirements:
1. The property (called “qualified property”) must be “tangible, depreciable, personal property which is acquired for use in the active conduct of a trade or business.” Land and buildings are not qualified property.
2. The property must be purchased and put into service in the year in which you claim the deduction. Putting an asset into service means that you have it set up and working and you are using it in your business. Buying a piece of property and then letting it sit and gather dust doesn’t count.
Annual Limits on Section 179 deductions
There are annual limits on the amount of Section 179 Deductions
For 2016 business tax purposes, the limits are:
- $500,000 maximum on individual items of new and used equipment and purchased (off-the-shelf) computer software. Read more about the requirements for applying a Section 179 deduction to sport utility vehicles.
- Your business can spend up to a maximum of $2 million on Section 179 equipment. The deduction is reduced above this amount.
If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.
To learn more about how the Section 179 Deduction works click the link below :
The Balance – What is a Section 179 Deduction?