Section 179 FAQ

Get answers to frequently asked questions about the Section 179 tax deduction.

Questions about Section 179? We have answers.

What is Section 179?

Realizing the need to offer unique tax benefits for US businesses, the IRS created the Section 179 tax deduction as part of the Economic Recovery Tax Act. It allows business owners to deduct the price of qualifying equipment, vehicles, and software in the year it is purchased or financed and put into service.

What is the Section 179 deduction limit for 2022?

As a result of the Tax Cuts and Jobs Act, the deduction limit for 2022 is $1,000,000, and the limit on equipment purchases increased to $2.5 million.

What qualifies for a Section 179 deduction?

Equipment that qualifies for a Section 179 deduction includes computers, software, office furniture, office fixtures, and business vehicles that weigh 6,000 pounds or more. Used business equipment is also eligible. Balboa Capital recommends that you consult your accountant or tax professional to determine if the equipment you want qualifies.

What is the Section 179 deadline?

To take advantage of the Section 179 deduction, you must purchase or finance qualifying equipment and put it into service by midnight, December 31st, in the year you elect to take to a deduction.

Is Section 179 a good idea for my small business?

If your goal is to minimize your taxable income for the year you purchase or finance qualifying new or used business equipment, Section 179 is a good idea.

What will my Section 179 deduction amount be?

Every business has its unique financial situation, and not all equipment is eligible for Section 179. However, you can see estimated deduction amounts with this Section 179 calculator for 2022.

What is bonus depreciation?

Bonus depreciation is a unique income tax deduction that allows business owners to recoup the purchase price of qualified new equipment over several years. Depending on the specific type of equipment, there is an annual allowance for depreciation. The new bonus depreciation amount is 100% due to the Tax Cuts and Jobs Act.

Is Section 179 automatic?

No. You need to elect the Section 179 tax deduction. To do this, you must complete IRS Form 4562 and include it in your business tax return. It is a good idea to work with a CPA to ensure that all your information is accurate.

Does Section 179 work with equipment financing?

Yes. Section 179 works with equipment financing. However, the equipment must qualify for Section 179, so make sure you contact your small business accountant before financing equipment.

What is the Section 179 carryover?

The Section 179 carryover comes in handy if you reach your maximum deduction amount for the year. If this happens, you might be able to carry over the amount to the following year. Here is an example of the Section 179 carryover: If a small business takes $100,000 of Section 179 deduction and has $60,000 of taxable income before the deduction, $40,000 ($100,000 minus $60,000) can be carried forward next year. Ask your accountant about the Section 179 carryover, as each business owner’s situation is unique.