Depreciation for Business–The New Law Under Sec 179

What is the Section 179 Deduction

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 entire purchase price from your gross income. It’s an incentive created by the IRS to encourage businesses to buy equipment and invest in themselves.

Businesses can immediately expense more under the new law

A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation.

The new law also expands the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property after the date when the property was first placed in service:

  • Qualified improvement property, which means any improvement to a building’s interior (aka Leasehold Improvements). However, improvements do not qualify if they are attributable to:
    • the enlargement of the building,
    • any elevator or escalator or
    • the internal structural framework of the building.
  • Roofs, HVAC, fire protection systems, alarm systems and security systems.

These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017.

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