Pursuant to § 179 of the Tax code, businesses may deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. The “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) expanded the Section 179 deduction limit to $500,000 and it will remain at this amount for 2017. Here’s § 179 at a glance for 2017.
The § 179 deduction applies to both new and used equipment, including off-the-shelf software. Section 179 is permanent at the $500,000 level until Congress acts to change it. If a business exceeds a total of $2 million of purchases in qualifying equipment, then the Section 179 deduction phases out dollar-for-dollar and is completely eliminated above $2.5 million. Congress will index the § 179 cap to inflation in $10,000 increments for the years following 2017.
To take the deduction for the tax year 2017, the business must finance or purchase the equipment and put into service between January 1, 2017, and the end of the day on December 31, 2017. The maximum amount that a business taxpayer may spend on equipment before the § 179 Deduction is available to a business for a reduction on a dollar for dollar basis is $2,000,000. Because larger businesses that spend more than $2.5 million on equipment won’t receive this deduction because of the spending cap, § 179 is a genuine “small business tax incentive” for all such entities.
The bonus depreciation amount of 50% is extended through 2019. With bonus depreciation, any business may depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. After this time, bonus depreciation decreases to 40 percent in 2018 and 30 percent in 2019.
To review, bonus depreciation is usually taken after the amount of the spending cap under § 179 is reached. Note that bonus depreciation not available for used equipment, only new equipment. The former qualifies for the § 179 deduction, but not for bonus depreciation.
Calculating the proper amounts of the § 179 deduction and bonus depreciation may be complicated for some small business owners. In this situation, it is important for any taxpayer, whether an individual or business, to engage the advice of an experienced and knowledgeable tax professional. If you have any question about taxes, please call THE TAX EXPERTS at the Thorgood Law Firm at 212-490-0704 for assistance or learn more online at www.thorgoodlaw.com. The consultation is FREE!
