*** We are not tax consultants ***
All business owners should consult their accountant or trusted tax advisor before deciding to utilize the incentive.
You can purchase big equipment before the end of the year and take a depreciation deduction in the first year during tax season. See more information on Section 179 Tax Deductions here.
1. What Is Section 179?
Section 179 is designed to encourage businesses to invest in themselves with equipment purchases by allowing them to take a depreciation deduction in the first year of purchase.
2. Is There a Spending Cap and Total I Can Deduct?
A total spending cap of $2.5 million has been applied to Section 179; once a company hits that amount, purchases become no longer eligible for Section 179 deductions. As of last year, the deduction limit is raised to $1 million, an increase from the $510,000 limit that was in place in 2017.
3. I’ve Heard “Bonus Depreciation” Mentioned with Section 179 – What Is It?
In the past, bonus depreciation went hand-in-hand with Section 179. Because of two important changes to bonus depreciation in 2018, the two programs are now separate opportunities – both valuable options, depending on each company’s unique needs.
4. Is Bonus Depreciation Expected to Change in the Future?
Bonus depreciation was changed to 100% last year and is expected to stay that way for five years. After that point, it is expected to phase down to 80%, 60%, 40%, and 20% in subsequent years.
5. What Qualifies for Section 179?
Tangible, movable items are eligible for Section 179 deduction, including equipment, and some business-use vehicles and software. Assets like a new equipment storage building do not qualify for Section 179 deduction.
6. Is Section 179 Only Applicable to New Equipment Purchases?
Used machines and most leased equipment, in addition to new equipment purchases are eligible for Section 179 deduction.
7. What About Used Equipment in Terms of Bonus Depreciation?
One of the major changes to bonus depreciation in 2018 is that it can be applied to used equipment. Leased equipment is still eligible as well.
8. I’ve Heard the Term “Like-Kind Exchange” – Does That Apply to Section 179?
Like-Kind Exchange no longer applies to Section 179. Part of 2018 tax reform included a repeal of Like-Kind Exchange for equipment.
9. What’s the Date Range to Apply Section 179 in 2019?
To apply the deduction for tax year 2019, equipment must be financed or purchased between January 1, 2019 and December 31, 2019. Within the date range, a machine must be placed in service – essentially, delivered to a company or jobsite, ready to go to work – before midnight on December 31 to be eligible. Keep in mind any equipment purchases made this year, with the intent to apply Section 179, may already have used the deduction to its full potential.
10. Can I Hold This Year’s Section 179 Deduction Until Next Year?
Yes, and there are reasons to consider doing so. For example, a business in a lower tax bracket now but looking to grow in 2020 might want to hold off on deducting all its equipment purchases by not taking Section 179 on the acquisition. Instead, the deduction could be spread out over time (likely five years) through depreciation deductions.
*** We are not tax consultants. All business owners should consult their accountant or trusted tax advisor before deciding to utilize the incentive. ***