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Section 179 Deduction
(Updated
For 2008 Economic Stimulus Act)
Most new business equipment can be either depreciated over its
useful life or expensed immediately under Internal Revenue Code Section 179. The
maximum deduction is based on the following schedule for the date in which the
tax year begins. Each 1040, whether Single or Joint, is limited to one
maximum. 179 expenses passed through via K-1s from partnerships (1065),
S-corps (1120S), or trusts (1041) are limited at the 1040 level to the one
maximum amount. A C corp is able to deduct its own 179 expenses in
addition to what is claimed on the 1040s of the owners. This is one of the
many ways in which C corps can save thousands of dollars in taxes over S corps.
The following table is
of the Federal maximums. Many states have not matched these amounts and
have much smaller allowable deductions. In those cases, it is critical to
maintain two sets of depreciation schedules; one for IRS and another for the
State. Since the basis of an asset may be different for each tax agency,
the gain or loss on its disposal will similarly be different.
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2002 |
$24,000 |
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2003 |
$100,000 |
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2004 |
$102,000 |
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2005 |
$105,000
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2006 |
$108,000 |
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2007 |
$125,000 |
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2008 |
$250,000 |
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2009 |
$128,000
+ COLA |
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2010 |
$128,000
+ COLA |
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2011 |
$25,000 |
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For 2004 through 2010, the annual amounts are to
be adjusted for inflation. Up until recently, the Section 179 election was
only allowed on originally filed tax returns. People who overlooked it
were not allowed to claim it on amended returns. This new law allows the
Section 179 expensing election to be claimed or revoked on amended returns for
2003 through 2010.
Qualifying Property
Generally, the types of business equipment
that qualify for this expensing election are the same kind that qualified for
the now-defunct Investment Tax Credit. Most movable assets qualify.
Permanent structures do not qualify. Business vehicles with a gross
vehicle weight over 6,000 pounds qualify for the full Sec. 179, while lighter
vehicles have a much lower dollar limit.
One of the most common questions I am still
receiving is whether the Section 179 expensing election is only available for
the purchase of brand new assets or whether things such as used vehicles
qualify. The answer is still the same. The asset just has to be new to
you. You can claim the deduction for items purchased from anyone other
than yourself or an entity controlled by you, such as a closely held
corporation.
As of October 22, 2004,
the maximum amount that can be claimed for SUVs weighing between 6,000 and
14,000 pounds is $25,000. The remaining $77,000 can be used for other
kinds of business equipment, including vehicles weighing more than 14,000
pounds.
To be eligible for the Section 179 deduction,
the asset must be used at least 50% for
business in the first year it is placed in service. The cost eligible for
the deduction is the business usage percentage.
Here are more details on qualifying and
nonqualifying property, courtesy of the indispensable
QuickFinder reference book.
Qualifying Property:
Tangible personal property (such as machines, equipment,
furniture).
Certain other tangible property used for specified purposes.
Single-purpose agricultural or horticultural structures.
Certain storage facilities.
Railroad gradings or tunnel bores.
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Airplanes.
Automobiles.
Billboards (if movable).
Cattledairy or breeding.
Citrus trees.
Computers.
Emus.
Fruit trees.
Gas storage tanks.
Goatsbreeding or milking.
Greenhouses.
Helicopters.
Horses.
Macadamia trees.
Machinery and equipment.
Mink and other fur-bearing
animals.
Office equipmentcopiers,
typewriters, fax machines, etc.
Office furnituredesks,
chairs, file cabinets, book shelves, etc. |
Off-the-shelf computer
software.
Oil and gas well and
drilling equipment.
Orchards.
Ostriches.
Printing presses.
Refrigerators.
Sheepbreeding.
Signs.
Sport Utility Vehicles
(SUVs).
Storage facility (e.g.,
peanut, hay, potato or tobacco).
Store counters.
Testing equipment.
Tractors.
Trailers (movable).
Trucks.
Vineyards.
Water wells. |
Nonqualifying Property:
Property held for the production of income
(investment property, most rentals).
Real property, including buildings and
their structural components, air
conditioning and heating units.
Property acquired by gift, inheritance
or trade.
Property purchased from certain related parties.
Controlled group to controlled group transactions.
Property used outside the United States.
Property used in connection with furnishing lodging.
Property used by tax-exempt organizations and governmental units.
Property used by foreign persons or entities.
Property held by an estate or trust.
Property used by a passive activity.
Intangible property (including computer software).
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Air conditioning units.
Barns.
Billboards (if not movable).
Bridges.
Buildings.
Docks.
Elevators.
Escalators.
Fences.
Foreign used property.
Heating units.
Investment property.
Land. |
Landscaping.
Leased property.
Rental property.
Roads.
Shrubbery.
Sidewalks.
Stables.
Swimming pools.
Trailers (nonmobile with wheels
detached and permanent utilities).
Warehouses.
Wharves. |
IRS
Publication 946: How To Depreciate Property
Phase-Out of Sec. 179
To prevent the evil rich, who buy a lot more
new things than "normal" people, from receiving this tax benefit, there is a
phase out of the allowable Section 179 deduction if too much new
§179 qualifying property is purchased during the tax
year. For each dollar of newly acquired qualifying property purchased
during the tax year that exceeds the amounts established by our rulers in DC,
the Section 179 deduction is reduced by a dollar; but not below zero.
For 2003, that phase-out begins at $400,000
For 2004, that phase-out begins at $410,000
For 2005, that phase-out begins at $420,000
For 2006, that phase-out begins at $430,000
For 2007, that phase-out begins at $500,000
For 2008, that phase-out begins at $800,000
This page was last revised by KMK on
Monday, May 05, 2008
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