Save with the Section 179 Tax Deduction

Posted on 10. Nov, 2009 by in News & Events

You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions.

What Property Qualifies?

To qualify for the section 179 deduction, your property must meet all the following requirements.

  • It must be eligible property.
  • It must be acquired for business use.
  • It must have been acquired by purchase.

Eligible Property

To qualify for the section 179 deduction, your property must be one of the following types of depreciation property:

  1. Tangible personal property
  2. Other tangible property (except buildings and their structural components) used as:
    1. An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services,
    2. A research facility used in connection with any of the activities in (a) above, or
    3. A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities.
  3. Single purpose agricultural (livestock) or horticultural structures. See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures.
  4. Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.
  5. Off-the-shelf computer software.

Off-the-shelf computer software.

 

 Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. It includes any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.

Tangible personal property

  

Tangible personal property is any tangible property that is not real property. It includes the following property.

  • Machinery and equipment.
  • Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs.

How Much Can You Deduct?

Your section 179 deduction is generally the cost of the qualifying property. However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. These limits apply to each taxpayer, not to each business. However, see Married Individuals under Dollar Limits, later. Also, see the special rules for applying the limits for partnerships and S corporations later. For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. See Do the Passenger Automobile Limits Apply in chapter 5.

If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.

Dollar Limits

The total amount you can elect to deduct under section 179 for most property placed in service in 2008 generally cannot be more than $250,000. If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $250,000. You do not have to claim the full $250,000.

The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction.

The above content was taken from: http://www.irs.gov/publications/p946/ch02.html#en_US_publink1000107413

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