Understanding Section 179

 2018 Deduction Limit = $1,000,000

This deduction  is good on new and used equipment, as well as off-the-shelf software.  This limit is only good for 2018, and the equipment must be  financed/purchased and put into service by the end of the day,  12/31/2018.

2018 Spending Cap on equipment purchases = $2,500,000

This  is the maximum amount that can be spent on equipment before the Section  179 Deduction available to your company begins to be reduced on a  dollar for dollar basis. This spending cap makes Section 179 a true  "small business tax incentive".

'Bonus Depreciation: 100%  for 2018 through 2022 then phased down over 4 years: 80% in 2023, 60%  in 2024 and so on. The new rules now allow used equipment vs just new  equipment.' - by Alistair N. Nevius on Dec 18, 2017

Bonus  Depreciation is generally taken after the Section 179 Spending Cap is  reached. Note: Bonus Depreciation is available for new equipment only.

*This  is an overall, "simplified" view of the Section 179 Deduction for 2018.  For more details on limits and qualifying equipment, discuss your  specific situation with your accountant. This is to used as a general  overview.  ALWAYS, seek tax advice from your accountant. We are NOT  accountants.* 

What is the Section 179  

What is the Section 179 DeductioDeducti

Limits of Section 179

Section  179 does come with limits - there are caps to the total amount written  off ($1,000,000 for 2018), and limits to the total amount of the  equipment purchased ($2,500,000 in 2018). 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 Qualifies for Section 179?

All  businesses that purchase, finance, and/or lease less than $2,500,000 in  new or used business equipment during tax year 2018 should qualify for  the Section 179 Deduction.

Most tangible goods including  "off-the-shelf" software and business-use vehicles (restrictions apply)  qualify for the Section 179 Deduction. For basic guidelines on what  property is covered under the Section 179 tax code, please refer to this  list of qualifying equipment. Also, to qualify for the Section 179  Deduction, the equipment and/or software purchased or financed must be  placed into service between January 1, 2018 and December 31, 2018.

The  deduction begins to phase out if more than $2,500,000 of equipment is  purchased - in fact, the deduction decreases on a dollar for dollar  scale after that, making Section 179 a deduction specifically for small  and medium-sized businesses.

What's the difference between Section 179 and Bonus Depreciation?

Bonus  depreciation is offered some years, and some years it isn't. Right now  in 2018, it's being offered at 100% through 2022 and phased down over 4  years: 80% in 2023, 60% in 2024, 40% in 2025 and 20% in 2026. The new  Tax Law that went into effect n 2018 also removed the rule that made  bonus depreciation available only for new property.

The most  important difference is both new and used equipment qualify for the  Section 179 Deduction (as long as the used equipment is "new to you").  What is new is that Bonus Depreciation now covers 'new' and 'used'  equipment which it didn't in years past.

Bonus Depreciation is  useful to very large businesses spending more than the Section 179  Spending Cap (currently $2,500,000) on new capital equipment. Also,  businesses with a net loss are still qualified to deduct some of the  cost of new equipment and carry-forward the loss.

When applying  these provisions, Section 179 is generally taken first, followed by  Bonus Depreciation - unless the business had no taxable profit, because  the unprofitable business is allowed to carry the loss forward to future  years.

Section 179's "More Than 50 Percent Business-Use" Requirement

The  equipment, vehicle(s), and/or software must be used for business  purposes more than 50% of the time to qualify for the Section 179  Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or  software by the percentage of business-use to arrive at the monetary  amount eligible for Section 179.

Remember to check with your Accountant for specifics regarding your situation and how Section 179 is applicable.

Most people think the Section 179 deduction is some mysterious or complicated tax code. It really isn't, as you will see below.

Essentially,  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.

Several  years ago, Section 179 was often referred to as the "SUV Tax Loophole"  or the "Hummer Deduction" because many businesses have used this tax  code to write-off the purchase of qualifying vehicles at the time (like  SUV's and Hummers). But, that particular benefit of Section 179 has been  severely reduced in recent years, see 'Vehicles & Section 179' for  current limits on business vehicles.