UPDATE (12/17/2014): The "Tax Extenders" bill passed by Congress on December 16, 2014, is expected to be signed by President Obama. This legislation continues the $500,000 maximum Section 179 deductions, but only through new and used equipment purchased by December 31, 2014.

 

Section 179 Deductions

Section 179 of the IRS Code was enacted to help small businesses by allowing them to take a depreciation deduction for certain assets (capital expenditures) in one year, rather than depreciating them over a longer period of time.


Taking a deduction on an asset in its first year is called a "Section 179 deduction." You can see that there is a benefit to taking the full deduction for the cost of the item immediately, rather than being required to spread out the deduction over the item's useful life.

For example, if you buy a computer for your office, under Section 179 you can deduct the full cost of that computer in one year. This also makes sense, because we all know that computers have a short lifetime, or useful life.

So what types of business property does Section 179 apply to? The IRS says it must be "tangible, depreciable, personal property which is acquired for use in the active conduct of a trade or business."

Annual Limits on Section 179 deductions and bonus depreciation
There are annual limits on the amount of Section 179 Deductions. For 2012 and 2013 the limits are:

• $500,000 maximum on new and used equipment and purchased computer software
• Your business can spend up to a maximum of $2 million on Section 179 equipment. The deduction is reduced above this amount.

Bonus depreciation limits for 2012 and 2013 may be taken on new equipment only, at 50$ for the first year.

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