Section 179

Definition in Detail

Section 179 is a part of the U.S. tax code that allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, rather than depreciating it over time. This special tax deduction was put in place to encourage businesses to buy equipment and invest in their operations.

Examples:

1. Acquisition of Office Equipment: If a company buys $100,000 worth of office equipment, it can elect to deduct the entire amount under Section 179, reducing its taxable income by $100,000 in that tax year.
2. Purchase of Delivery Vehicles: A logistics company buying delivery trucks under Section 179 can immediately deduct the cost of these vehicles instead of spreading the depreciation over several years.
3. Computer Systems: A business investing $50,000 in new computer systems can take advantage of Section 179 to immediately reduce its tax liabilities.

Frequently Asked Questions

Q1: What qualifies as Section 179 property?
A1: Tangible personal property, depreciable personal property, off-the-shelf computer software, certain improvements to nonresidential property, and business vehicles qualify according to Section 179.

Q2: Are there annual limits to Section 179 deductions?
A2: Yes, there are limits. As of 2023, the maximum deduction limit is $1,080,000, and the phase-out threshold is $2,700,000.

Q3: Can Section 179 be used in conjunction with Bonus Depreciation?
A3: Yes, businesses can utilize both Section 179 and Bonus Depreciation in the same tax year. Section 179 is generally elected first, followed by Bonus Depreciation.

Q4: Does 179 apply to both new and used equipment?
A4: Yes, Section 179 applies to both new and used equipment as long as the used equipment is new to the business.

Q5: Is Section 179 mandatory?
A5: No, Section 179 is an election, meaning businesses do not have to use it if they do not wish to. They can choose to depreciate the assets over time instead.

Related Terms with Definitions

• Bonus Depreciation: An additional allowance that businesses can use to deduct a significant part of the cost of qualified property in the first year of usage.
• Depreciation: A method of allocating the cost of a tangible asset over its useful life.
• Tangible Personal Property: Physical items, such as machinery, vehicles, furniture, which can be relocated.
• Capital Expenditure: Money spent by a business to acquire or maintain fixed assets such as land, buildings, and equipment.

Online Resources

1. IRS Official Website - Section 179: IRS Section 179
2. Investopedia - Section 179 Explained: Investopedia
3. Small Business Administration (SBA) Blog on Taxes: SBA Blog

References

• Internal Revenue Service. (2023). “26 U.S. Code § 179 - Election to Expense Certain Depreciable Business Assets.” IRS.gov.
• Rachlin LLC. (2023). “Understanding Section 179 and Bonus Depreciation: Maximizing Benefits.” Rachlin LLC.

Suggested Books for Further Studies

1. “Tax Savvy for Small Business” by Frederick W. Daily
2. “Deduct It! Lower Your Small Business Taxes” by Stephen Fishman J.D.
3. “J.K. Lasser’s Small Business Taxes 2021: Your Complete Guide to a Better Bottom Line” by Barbara Weltman