What exactly is Section 179?
If you own or operate a small business that purchases, finances or leases less than $2,500,000 in new or used equipment during the tax year, you most likely qualify for the Section 179 deduction.
Perfect for business owners who utilize Skid Steer Loaders, Excavators, and any other heavy equipment to get work done, Section 179 is designed to help businesses save money, incentivize growth by investing in progress, and stimulate the American economy. The logic goes, that if you can get a tax break on a piece of equipment or attachment, you'll have more freedom to make purchases to match the needs and growth of your business.
Section 179 allows you to write off an entire equipment purchase in the year that you buy it, rather than writing off a small portion at a time due to yearly depreciation. For most small businesses the entire cost of any equipment purchase can be written-off on their tax return (up to $1,000,000 as of 2022). This means that if you purchase or finance a piece of equipment or an attachment, and put that equipment to work for your business before 12/31, then you can deduct the full purchase price from your gross income, thus lessening your overall tax burden.
When Should I take the Section 179 Deduction?
You can elect to take the Section 179 deduction when filing your annual tax return, and no matter if you're filing on time, or if you receive an extension, the deduction will apply. The good news is that taking advantage of this tax break is relatively simple as most small businesses are likely to have an accountant on staff or a tax consultant available. Just fill out Part 1 of IRS Form 4562 and attach it to your tax return, same as any other additional form.
When it comes to the Section 179 deduction, it's a good idea to act soon. The tax code can change year-to-year, so some benefits that are available today can change or go away entirely in future years.
What type of assets are eligible? What conditions should I know about?
In order to take advantage of this deduction, equipment, attachments, vehicles and office equipment must be purchased and put into use between January 1 and December 31 of the tax year you are claiming. Also, while the machinery and equipment can be purchased used, it must be new to you, so purchases from previous years are not eligible. That being said, here is a list of eligible property:
- Machinery and Equipment for business use
- Tangible property used in business
- Business vehicles (gross weight of 6,000 lbs. or greater)
- Office equipment
- Office furniture
- Computers and "off-the-shelf" computer software
- Large manufacturing tools and equipment
- Machinery and Equipment for partial business use (deduction based of percentage of personal use vs. business use)
Anything else I should be aware of?
Section 179 is a true deduction for small and medium-sized businesses. As such, there are some monetary limits and caps to keep in mind:
- For 2022, the cap to the total amount that can be written off is $100,000,000.
- The limit to the total amount of equipment/machinery/attachments purchased is $2,500,000.
If you do reach the limit of $2,500,000, there is also Bonus Depreciation to consider. Bonus Depreciation can change year-to-year. Sometimes it's not available, or sometimes the percentage offered will change. For 2022: Bonus Depreciation is currently being offered at 100%.
Bonus Depreciation only covers new equipment (used equipment, even if "new to you" does not qualify), and can be utilized after the full Section 179 Deduction has been claimed. Bonus Depreciation allows for an additional 100% deduction of the cost of qualifying machinery/equipment that has been put into use during the applicable tax year.
Is there a deadline?
There is a deadline. Equipment, machinery, attachments, and any other qualifying deductions must be purchased/financed and put into use by December 31 of the tax year you are claiming.
How about an example of how this works?
Example of the Section 179 Deduction:
If you purchase a new piece of equipment to be used 100% for your business, and it costs $50,000 with no salvage value. Then you can depreciate that asset over the next 5 years at $10,000 a year. Section 179 would allow you to write off $50,000 in the current year.
Here are some key numbers to remember
$100,000,000: Total Deduction Limit for 2022
$2,500,000: The Spending Cap on equipment purchases for 2022
100%: Bonus Depreciation for 2022
Any more questions? Get in touch with a tax professional
Please note that this webpage is designed as a primer and explanation of the Section 179 deduction. We do not claim to be tax professionals and want to remind you that the facts and figures presented on this page are liable to change year-to-year and without warning, depending on adjustments and changes made by the IRS. While we understand the benefits this deduction can have for our customers and owners of small businesses, we urge you to consult with your accountant or a qualified tax professional before making any qualifying purchases or claiming any deductions on your official tax return.