What is it?
According to irs.gov – Section 179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service. For tax years beginning after 2017, the Tax Cuts and Jobs Act increased the maximum Section 179 expense deduction from $500,000 to $1 million. The phase-out limit increased from $2 million to $2.5 million. These amounts are indexed for inflation for tax years beginning after 2018.
The Section 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and if the taxpayer elects, qualified real property. The Tax Cuts and Jobs Act amended the definition of qualified real property to mean qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems. Revenue Procedure 2019-08 explains how taxpayers can elect to treat qualified real property as Section 179 property.
Deductions are good on new and used equipment financed or purchased and put into service between January 1, 2020, and December 31, 2020. The 2020 deduction limit has increased to $1,040,00. The 2020 maximum spending cap on equipment purchases is $2,590,000 before the Section 179 Deduction begins to be reduced on a dollar for dollar basis. Larger businesses that spend more than $3,630,000 on equipment won’t get the deduction making the Section 179 Deduction a “small business tax incentive”. You are also able to collect on Bonus Depreciation at 100% for new equipment and used equipment. More detailed information is available at section179.org on how to take advantage of this deduction for 2020.
What you can deduct:
New or used equipment purchased for business purposes, including machinery
Tangible personal property used in the business – all the stuff to run your business
Vehicles with a gross weight above 6,000 pounds as long as they are used solely for business
Office furniture like desks, chairs, office equipment, computers, and software
Non-structural property attached to your business – especially large pieces of equipment
Property used for business and personal use – calculated on a percentage of time used by the business
Improvements made to non-residential buildings – new roofs, alarms, fire-suppression systems
What you CAN’T deduct:
Real property – Land, buildings, permanent structures
Property used outside of the United States – some exceptions apply
Property used to furnish lodging
Property that was gifted or inherited – includes purchased property from relatives or business associates