Understanding the Basics of Section 179 Deductions
Section 179 deductions are not as ominous or complex as they may seem. In a nutshell, 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. Section 179 is one of the few government incentives available to small businesses that provides substantial tax relief/benefits.
To qualify, the equipment or software must be placed into service between January 1, 2019 and December 31, 2019. New or used equipment will qualify, so long as the used equipment is new to your business. Qualifying goods include: equipment (machines, etc.) purchased for business use, tangible personal property used in business, business vehicles with a gross vehicle weight in excess of 6,000 lbs., computers, computer “off-the-shelf” software, office furniture, office equipment, property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment), partial business use (equipment that is purchased for business use and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes), and certain improvements to existing non-residential buildings: fire suppression, alarms and security systems, HVAC, and roofing.
In practice, Section 179 allows your business to write off the entire purchase price (100%) of qualifying equipment/software for the current tax year. In years past, the purchase could be written off, but over a period of time. For example, a $100,000 purchase of qualifying equipment will, under the current tax law, be written off completely in the first year. Under previous legislation, the $100,000 purchase may be written off $20,000 a year for a period of five years.
There are limitations to section 179 deductions. The total amount that may be written off is $1,000,000 for 2019; the total amount of equipment purchase that can be written off is $2,500,000. The deduction will begin to phase out after $2,500,000 is spent (and be eliminated entirely once $3,500,000 in purchases is reached).