The Section 179 Tax Deduction benefits were raised by the Tax Cuts and Jobs Act of 2017 effective tax years beginning January 1, 2018. Section 179 tax benefits can change or be discontinued at any time, without notice, and should be considered a catch-it-now opportunity to write off the entire purchase price of qualifying equipment.
The 2019 deduction limit remains at the 2018 $1,000,000 level with a $3,500,000 cap with Bonus Depreciation offered at 100%. Taking advantage of the IRS Section 179 Deduction means that a business can deduct the full cost of qualifying equipment from their 2019 taxes, up to $1,000,000.
Using Section 179 could be the most profitable decision a small business owner makes in 2019.
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What is the Section 179 Deduction?
This section of the IRS tax code applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and qualified real property. Section 179 allows a business to deduct the full purchase price of qualifying vehicles, equipment, and software purchased, leased or financed during the tax year. If you buy or lease a piece of qualifying machinery and equipment (tangible personal property), you can deduct the full purchase price from your gross income (within the above 2019 limits).
Several years ago, the Section 179 Deduction was known as the SUV Tax Loophole or the Hummer Deduction and had people scrambling to see if their favorite heavy vehicle met the specs. It wasn’t unusual for business owners to lower their voices as they talked about “using the loophole,” as many considered it too good to be true.
The Section 179 Deduction, which is more beneficial to small businesses than in the past, is one of the few government incentives even available to them. Millions of small business owners are taking action and getting real benefits. For instance, if the business purchased qualifying equipment at the cost of $25,000, Section 179 allows for 100% of that cost to be written off in the year it was placed into service.
Simple Section 179 tax deduction takeaways
- All businesses that purchase, finance, or lease new or used (but new to them) business equipment during the 2019 tax year should qualify IF they spend less than $3,500,000.
- For most small businesses (adding total equipment, software, and vehicles totaling less than $1,000,000 in 2019), the entire cost can be written off on the 2019 tax return.
- Most tangible goods qualify. Here’s information on “off-the-shelf” software, business-use vehicles, and qualifying equipment.
- The definition of qualified real property has been amended to mean qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems.
- Changes relative to farming businesses are expanded and are confusing at best and target alternative depreciation, the 10 year recovery period, and issues related to real property trades and property placed in service before 2018. And more.
Some not-so-simple 179 takeaways
- Definitions of qualified real property, qualified improvement property, and Section 179 expensing vs. bonus depreciation may be easy to read, but interpretation and application can get tricky. Depending on your business and personal financial goals, a miscalculation on your part could shatter IRA or 401k contribution capabilities.
- With the TCJA still changing, utilizing Section 179 options could leave a business owner without options. Tackling this as a do-it-yourself tax preparer could leave the business owner with strategies that don’t allow for if-this-then-that shifts during the tax year.
- Most business owners admit they know more about their craft or profession than they know about the ever-changing, volatile tax laws. The stakes are too high to depend on DIY skills that lead to missed opportunities or finding yourself in a tax corner with no good way out.
Using these tax benefits became easier
Nobody likes to pay taxes. And worse than paying taxes is overpaying them. We provide complete tax management services and work with business owners to make sure every decision is a tax-advantaged decision for their business, families, and heirs. We can do all of it for you or we can assist you.
As your complete business and individual financial guide, we’re by your side as you set and pursue strategic business, estate, and individual financial goals.
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