Section 179 allows businesses to take a deduction for the full purchase price of qualifying equipment, vehicles, and/or software purchased in that tax year. This deduction is beneficial to businesses as it can help lower their current year tax liability. Below are answers to some of the most frequently asked questions about the tax deduction.
What is Section 179?
Section 179 of the US Internal Revenue Code is an immediate expense deduction that business owners can take for the full purchase price of qualifying equipment and/or software. Without the benefit of Section 179, business owners that purchased qualifying equipment would have to write off the purchase price a little at a time through depreciation.
Limitations on Section 179
The maximum amount that can be deducted in 2022 is $1,080,000, and that is limited to the total amount of qualifying equipment purchased, which is $2,700,000 in 2022. The deduction begins to phase out after $2,700,000 is spent and goes away completely after total purchases of $3,780,000
All businesses that purchase, finance or lease new or used business equipment during the tax year should qualify. To qualify for the Section 179 deduction in 2022, the property must be placed in service between January 1, 2022, and December 31, 2022, and must be used for business purposes more than 50% of the time.
Typically, tangible personal property such as those listed below qualifies for the deduction.
- Machinery & Equipment
- Office Equipment
- Office Furniture
- “Off-The-Shelf” Software
Qualified Real Property
Qualified improvement property can also qualify for Section 179. This may include improvements to the interior of a non-residential building, or external improvements like roofs, HVAC, and security systems.
Business owners must make an election to treat qualified real property, placed in service during the tax year, as Section 179 property.
Vehicles used in your business will qualify for the deduction with some limits. For passenger vehicles, the deduction is limited to $11,160. For certain vehicles, with a gross vehicle weight rating above 6,000 pounds but not more than 14,000 pounds gross vehicle, such as SUVs or crossover vehicles, there is a limit of $25,000.
Section 179 vs. Bonus Depreciation
Large businesses who have exceeded the Section 179 cap of $2,700,000, might consider taking bonus depreciation. Bonus depreciation allows businesses to deduct a large percentage of eligible assets immediately, rather than write off those assets over the asset’s useful life.
Bonus depreciation is not consistently offered, but it is available at 100% for 2022.
Both new and used equipment qualify for Section 179. Typically, bonus depreciation can only be taken on new equipment; however, currently, bonus depreciation can be taken on used equipment as well.
Do I Qualify for Section 179 Tax Deduction?
If you have questions about what assets might be deductible or how to claim Section 179, reach out to our team for support.