By Victoria Barber-Emery on December 11, 2018
Most people think the IRS Section 179 deduction is some mysterious or complicated tax code. It really isn’t. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year.
If you buy a piece of qualifying equipment, you can deduct the full purchase price from your company’s gross income. This incentive was created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
With new tax law changes in 2018, Section 179 is more beneficial to small businesses than ever. Although large businesses also benefit from Section 179, the original target of this legislation was much needed tax relief for small businesses.
How Does Section 179 Work?
In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. For example, if your company spent $50,000 on a machine, it could write off $10,000 a year for five years (these numbers are only an example).
While it’s true that this is better than no write-off at all, most business owners prefer to write off the entire equipment purchase price for the year they buy it. And that’s exactly what Section 179 does! It allows your business to write off the entire purchase price of qualifying equipment for the current tax year.
This has made a big difference for many companies. Businesses have used Section 179 to purchase needed equipment right now, instead of waiting. For most small businesses, the entire cost of qualifying equipment can be written-off on the 2018 tax return (up to $1,000,000).
Increased Maximum Deduction
The deduction limit for Section 179 increased from $500,000 to $1,000,000 for tax year 2018 and beyond. The limit on equipment purchases increased from $2 million to $2.5 million.
The new law also expands the definition of Section 179 property to allow the taxpayer to elect to include some improvements made to nonresidential real property after the date when the property was first placed in service. This includes roofs, HVAC, fire protection systems, alarm systems and security systems and more. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017.
Temporary Bonus Depreciation
Further, the bonus depreciation increased from 50% to 100% and is made retroactive to 9/27/2017 and good through 2022. The bonus depreciation also now includes used equipment.
For more information on the temporary bonus depreciation and other changes to The Tax Cuts and Jobs Act, see the Fact Sheet on IRS.gov.