Section 179 FAQ

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

Questions about Section 179? We have answers.

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

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As a result of the Tax Cuts and Jobs Act (H.R.1), the deduction limit for 2021 is $1,000,000, and the limit on equipment purchases has increased to $2.5 million.

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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 with your accountant or tax professional to find out if the equipment you want qualifies.

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In order to take advantage of the Section 179 deduction, you need to purchase or finance qualifying equipment and put it into service by midnight, December 31st in the year you are electing to take to deduction.

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

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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% as a result of the Tax Cuts and Jobs Act (H.R.1).

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No. In order to take advantage of the Section 179 tax deduction, you need to elect it. To do this, you need to complete IRS Form 4562 and include it with your business tax return. It is a good idea to work with a CPA to make sure that all of your information is accurate.

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Yes. Section 179 works with equipment financing. However, the equipment must qualify for Section 179, so make sure you contact your small business accountant prior to making a purchase.

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The Section 179 carryover comes in handy if you reach your maximum deduction amount for the year. In the event that this happens, you can “carry over” the amount to the next 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 prior to the deduction, $40,000 ($100,000 minus $60,000) can be carried forward to next year.

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