What is Section 179?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the full purchase price from your gross income. It's an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
How does it work?
When your business buys certain items of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off maybe $10,000 a year for five years. Section 179 allows business owners to write off the entire equipment purchase price for the year they buy it.
Section 179 can provide you with significant tax relief for the 2017 tax year, but equipment and software must be financed and in place by midnight December 31, 2019.
Each individual's tax situation is unique; therefore, please consult your tax professional to confirm depreciation deduction and tax benefits. For more details, visit IRS.gov.
2019 SECTION 179 SAMPLE CALCULATION
Section 179 Deduction:
Deduction Maximum: $1,000,000
100% Bonus First Year Depreciation:
Updated to 100% via 'Tax Cuts and Jobs Act'
Normal First Year Depreciation:
20% in each of 5yrs on remaining amount
Total First Year Deduction:
35% tax rate
Equipment Cost after Tax:
Assuming a 35% tax bracket
Are there limits?
Section 179 does come with limits--there are caps to the total amount written off ($1,000,000 for 2019) and limits to the total amount of equipment purchased ($2,500,000 in 2019). The deduction begins to phase out dollar-for-dollar after $2,500,000 is spent by a given business, so this makes it a true small and medium-sized business deduction.
Who is elligible?
All businesses that purchase, finance, and/or lease less than $3,500,000 in new or used business equipment during tax year 2019 should qualify for the Section 179 Deduction. Also, to qualify for the Section 179 Deduction, the equipment purchased or financed must be placed into service between January 1, 2019 and December 31, 2019.