IRS Section 179 Information

IRS Section 179

Section 179 of the United States Internal Revenue Code (26 U.S.C. Section 179), allows businesses to deduct the cost of certain types of property on their income taxes as an expense, rather than requiring the cost of the property to be capitalized and depreciated. The type of property covered under Section 179 is limited to tangible, depreciable, and personal property which is acquired by purchase for the use in a trade or business. Here are some of the highlights of the Section 179 provisions:

2013 and 2012 Deduction Limit = $500,000
The deduction limit is applicable on new and used equipment, as well as off-the-shelf software.

2013 and 2012 Limit on equipment purchases = $2,000,000
The limit on purchases is the maximum amount that can be spent on equipment before the Section 179 Deduction begins an reduction on a prescribed schedule.

Bonus Depreciation = 50%
The bonus depreciation can be utilized after the $2 million limit in capital equipment purchases is reached. The bonus depreciation is available for new equipment only and can also be utilized by businesses that will have net operating losses in 2013.

Here is an example of how the IRS Section 179 can work for you:

IRS SECTION 179

(EXAMPLE CALCULATION)

Equipment Purchases $650,000
First Year Write Off

($500,000=maximum in 2013)

$500,000
50% Bonus First Year Depreciation

($650K-$500K=$150K x 50%)

$75,000
Normal First year Depreciation

(20% in each of 5-yrs on remaining amount)

$15,000
Total First Year Depreciation

($500k+$75K+$15K)

$590,000
Tax Savings

($590K x 36% tax rate)

$212,400
Equipment Cost after Tax

($590k less all tax deductions)

$437,600

Section 179 of the IRS tax code allows your business to deduct the full purchase price of qualifying equipment and, or, software purchased or financed during the tax year. In other words, if you buy or lease qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. This provision of the tax code was created by the U.S. government to encourage businesses to buy equipment and invest in their own operations.

Businesses that purchase, finance, and, or, lease less than $2,000,000 in new or used business equipment during the 2013 tax year qualify for the Section 179 Deduction. Businesses that are unprofitable in 2013 and have no taxable income to use the deduction can elect to use the 50% Bonus Depreciation and carry-forward to a year when the business is profitable.

The deduction begins to ramp down if more than $2,000,000 of equipment is purchased at a dollar for dollar rate, making Section 179 a deduction specifically for small and medium-sized businesses. However, large businesses can expense all qualifying capital expenditures with a 50% Bonus Depreciation for the 2013 tax year.

For ease of use, to qualify for the Section 179 Deduction, the equipment listed below must be purchased and put into use between January 1, 2013 and December 31, 2013.

  • Equipment (machines, etc) purchased for business use
  • Tangible personal property used in business
  • Business Vehicles with a gross vehicle weight in excess of 6,000 lbs (Section 179 Vehicle Deductions)
  • Computers
  • Computer “Off-the-Shelf” Software
  • Office Furniture
  • Office Equipment
  • Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
  • Partial Business Use (equipment that is purchased for business use and personal use: generally, your deduction will be based on the percentage of time you use the equipment for business purposes).

Contact Enviroserv today to learn more about the stimulus package incentive provided through IRS Section 179 and see if your company can benefit.