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Section 179 Deduction

February 29, 2016

If you are a small business owner, you’ll be sure to benefit from the recent extension of the Section 179 expense deduction.

This past December many important tax extenders were signed into law.  The extenders including a provision that makes permanent the Section 179 expense deduction ($500,000 subject to a reduction if total expenses exceed $2,000,000), and retroactively applies that $500,000 expense deduction limit for 2015.  In prior years, Section 179 expense amounts were extended yearly but were not permanent. This limited the usefulness of the incentive because the extensions occurred at the very end of the year when most business decisions for the year had already been decided.

The Section 179 deduction allows for a deduction of the cost of qualifying property in the year the property is placed in service, instead of recovering the cost over many years through yearly depreciation deductions.  This deduction was created to promote the growth of small businesses by incentivizing the purchase of items such as machinery and equipment for manufacturing and research activities.

To qualify for the Section 179 expense deduction, the property must have been purchased for use in an active trade or business.  Some examples of property that qualify for the deduction are:

  • Machinery
  • Equipment
  • Computers
  • Off-the-shelf computer software
  • Office furniture and equipment
  • Air conditioning and heating units
  • Livestock

 Land and improvements to real property, such as paved parking areas or fences, do not qualify as Section 179 property.  The deduction is limited by the income you’ve made from your business.

 Now that the PATH Act has made Section 179 expense deductions permanent, small business owners can depend on the expense limits and plan accordingly, as opposed to the uncertainty that has existed in prior years.