To qualify for Section 179 deduction, the asset
must be:
- Tangible;
- Purchased, not leased, for
use in your trade or business;
- Used more than 50% in your
trade or business;
- Placed in service (purchased,
acquired, or converted to business use) during the current tax year; and
- Acquired from a non-related
party.
You cannot claim a Section 179 deduction for:
- Real property (e.g., land,
building, sidewalks, landscaping, parking lots);
- Income-producing real
property;
- Investment property;
- Assets used 50% or less by
your business;
- Assets acquired in a tax-free
exchange or from a person or entity with whom you share a close
relationship as specified by the IRS; or
- Intangible assets such as
copyrights or patents.
Section 179 deductions are subject to these
limitations:
- You cannot claim a Section
179 deduction for more than $500,000 of the cost of qualified assets
placed in service during the year. (The limit for qualified enterprise
zone property and qualified renewal community property is $535,000.)
- Your Section 179 deductions
cannot be more than your net business income. Section 179 deduction
amounts that exceed your net business income can be carried over and used
in a subsequent year.
- The deduction amount is
reduced if the total cost of all Section 179 assets you placed in service
this year is more than $2,000,000. (The $500,000 deduction limit,
referenced above is reduced by one dollar for every dollar of total
acquisitions in excess of $2,000,000.)
That's a lot of
information, but TurboTax Business will check for these limitations as you
answer the interview questions.
Advantages and disadvantages of Section 179 deductions
- Taking a Section 179
deduction lets you decrease your net business income by increasing your
deductions in the tax year you acquire an asset. If your business is
operating at a profit, it's to your advantage to claim the Section 179
deduction.
- A Section 179 deduction can
reduce your cash outflow by decreasing your tax liability.
- Your total Section 179
deduction is limited to $500,000 ($535,000 for qualified enterprise zone
property and qualified renewal community property), so if your new asset
expenses for the year exceed this amount, it's to your advantage to take
the regular depreciation deduction on some assets.
Section 179 recapture
You must report the
recapture amount of a prior-year Section 179 deduction as income if any of the
following occurred before the asset's recovery period (or useful lifespan as
defined by the IRS) was up:
- You stopped using the asset
in your business
- Business use of the asset
fell below 50%
- You sold or otherwise
disposed of the asset
- The asset was stolen or
subject to a casualty
The amount you
report as income is the portion of the deduction that would have remained had
you used standard depreciation instead of Section 179. This is known as Section
179 recapture.
For more
information, refer to IRS
Publication 946, How to Depreciate Property
