Section 179 Deductions: Update
By Lili X. Wong, Senior, Tax & Business Services
Section 179 of the Internal Revenue Code allows a taxpayer to deduct the cost of qualifying property as an expense. Essentially, businesses can deduct the full purchase price of qualifying equipment and/or software in the year the property was purchased and placed into service. Under the Tax Cut and Jobs Act of 2017 (TCJA), the Section 179 deduction has been made permanent, and the total cost of qualifying property that can be expensed is $1 million dollars for property placed in service in tax year 2018. (For 2019, the Section 179 deduction is also $1 million dollars).
Qualifying property for purposes of the Section 179 deduction is defined to include:
- Business equipment of all types including machinery, computers, office furniture, storage tanks, signage, and any other commercial equipment.
- Vehicles designed for commercial use such as shuttle vans, cargo vans, heavy construction equipment, and trailers.
- Vehicles with gross vehicle weight in excess of 6,000 lbs., but no more than 14,000 lbs. (up to $25,000).
- Off-the-shelf software, readily available for purchase by the public with a non-exclusive license and not substantially modified.
- Property attached to a building that is not a structural component of the building, such as printing presses and large manufacturing tools and/or equipment.
- Partial business use equipment that is purchased for business and personal use (calculated based on the percentage of time the equipment was used for business purposes).
- Certain improvements to existing non-residential buildings such as fire suppression systems, alarms and security systems, HVAC, and roofing.
The property listed above qualifies whether new or used (but must be new to you) and regardless of whether it was purchased outright, leased, or financed.
Non-qualifying property for purposes of Section 179 includes:
- Real Property. Typically buildings, land, permanent structures and the components of the permanent structures (including improvements not specifically covered on the qualifying property section). Swimming pools, paved parking areas, docks, bridges and fences do not qualify.
- Property used outside the United States.
- Property used to furnish lodging.
- Property acquired by gift or inheritance, as well as property purchased from related parties.
- Any property that is not considered personal property.
To utilize Section 179 for a 2018 tax filing, the equipment must have been purchased and put into service by midnight of December 31, 2018. The Section 179 deduction was introduced mainly for the benefit of small to medium-sized businesses, as the limit on the total amount of equipment purchased begins to phase-out on a dollar-for-dollar basis as purchases approach $2,500,000.
Section 179 is a valuable and generous deduction. As it is only available to income-producing entities, it should be considered as an alternative or in addition to bonus depreciation. For those taxpayers considering an accelerated depreciation method, thought should be given to utilizing Section 179. Contact your Marcum tax advisor for further information on this expensing opportunity.