The Section 179 expense deduction is an expensing provision that applies to tangible business property placed in service during the tax year. By claiming it, you can deduct the full cost of newly purchased equipment in the year of purchase and, in the process, you receive a larger tax benefit, improve cash flow and have additional capital to invest.
Regardless of whether you made the purchase with cash or credit, the maximum write-off on a per-taxpayer basis is:
· $500,000 in 2011
· $139,000 in 2012
You are eligible for the deduction on a wide range of property purchases, from computer software to office equipment. For 2011, the deduction also is available for qualified restaurant, leasehold and retail improvement property. This expansion is not available in 2012, unfortunately.
You need to keep in mind that the deduction is reduced by every dollar more than $2 million. So, for example, if you spend $2.5 million or more on eligible property, your Section 179 expense deduction will be zero. Normal depreciation rules will then apply. In 2012, the $2 million dollar limit decreased to $560,000, and the deduction reaches zero for amounts more than $699,000.
The Section 179 expense deduction is limited and cannot be greater than your business’s taxable income and it does not apply to property you inherited or initially purchased for personal use, even if you later change it to a business use.
