What is the Section 179 Deduction?
Section 179 of the IRS Tax Code allows a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction. The equipment purchased or leased must be within the specified dollar limits of Section 179, and the equipment must be placed into service in the same tax year that the deduction is being taken (for tax year 2011, this means the equipment must be put into service between 01/01/2011 and 12/31/2011).
Did the Stimulus Acts have an impact Section 179?
The ‘Economic Stimulus Act of 2008′ generously increased the limits of the Section 179 Deduction and also added a one-time “Bonus Depreciation” on equipment that exceeded the deduction limit. Since then, four more stimulus acts have extended and enhanced these tax incentives.
What’s the difference between Section 179 and Bonus Depreciation?
The most important difference is both new and used equipment qualify for Section 179 Deduction, while Bonus Depreciation covers new equipment only. Bonus Depreciation is useful to very large businesses spending more than $2 million on new capital equipment in 2011; also businesses with a net loss in 2011 qualify to carry-forward the Bonus Depreciation to a future year. When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in 2011.
Can I lease (or finance) equipment and take the Section 179 Deduction?
Absolutely. In fact, this is a very effective strategy, as the deduction you take may actually exceed the total loan or lease payments you make for the year.
How do I know if the property I am purchasing or leasing qualifies for the Section 179 Deduction?
****Section 179 Qualifying Property
Section 179 was designed with businesses in mind. That’s why almost all types of “business equipment” qualify for the Section 179 deduction.
All businesses need equipment on an ongoing basis, be it machinery, computers, software, office furniture, vehicles, or other tangible goods. It’s very likely that your business has purchased many of these goods during the past year, and will do so again and again. Section 179 is designed to make purchasing that equipment during this calendar year financially attractive.
Material goods that generally qualify for the Section 179 Deduction
Please keep in mind that to qualify for the Section 179 Deduction, the below equipment must be purchased and put into use between January 1, 2011 and December 31, 2011.
- Equipment (machines, etc) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight in excess of 6,000 lbs (Section 179 Vehicle Deductions)
- Computers
- Computer Software ( “Off-the-Shelf” Software)
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
- Partial Business Use (equipment that is purchased for business use and personal use – generally, your deduction will be based on the percentage of time you use the equipment for business purposes).
Act Now
Section 179 can change yearly without notice, so it benefits you to take advantage of this generous tax code while it’s available. Section 179 offers small businesses a great opportunity to maximize their purchasing power. In addition, the recent Stimulus Acts have provided the small business owner with generous new (and higher) deduction limits. Most of the equipment your business will purchase, finance or lease qualifies for the deduction, so do your homework and verify that your company is leveraging the Section 179 Deduction this year.
List of Section 179 Non Qualifying Property
As we previously mentioned, most equipment will qualify for the Section 179 Deduction. Some of the property and equipment that does not qualify for the Section 179 Deduction is listed below.
- Real Property does not qualify for the Section 179 Deduction. Real Property is typically defined as Land, Buildings, Permanent Structures and the components of the Permanent Structures (including improvements). Some other examples that would not qualify for the Section 179 Deduction include paved parking areas and fences.
- Air conditioning and heating equipment is generally not eligible for the Section 179 Deduction.
- Property used outside the United States generally does not qualify for the Section 179 Deduction.
- Property that is used to furnish lodging is generally not qualified for the Section 179 Deduction.
- Property acquired by gift or inheritance, as well as property purchased from related parties does not qualify for the Section 179 Deduction (No, you can’t sell equipment to yourself and qualify for Section 179).
- Any property that is not considered to be personal property, may not qualify for the Section 179 Deduction.
- Used Equipment (that is new to you) qualifies for Section 179, however used equipment does not qualify for Bonus Depreciation.
Note> The ‘Small Business Jobs & Credit Act of 2010′ allows taxpayers to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. This provision is new, so please bookmark this page and check back for updated details.
Complying with Section 179
If you are not sure whether or not your property or equipment should be considered Personal Property or Real Property, please consult your tax preparer to ensure that you are complying with IRS §179. While the Section 179 Deduction offers a tremendous advantage to small businesses across the country, please ensure that any deductions you are taking are within the legal requirements of Section 179.
*** Important Update for Tax Year 2011 ***
Jan 1, 2011 - Using Section 179 and/or Bonus Depreciation with an Equipment Lease or Loan might be the most profitable decision you make in 2011.
Because the amount you deduct will exceed your cash outlay for 2011, a properly structured Equipment Lease or Equipment Loan combined with taking Section 179 is a bottom-line enhancing tool (plus, you get the new equipment and software you’re adding to your business).
Also, the ‘$179 bonus per $10,000 financed’ is available thru 12/31/2011. This means that you (a) get your equipment, vehicles, and/or software now, (b) get to take advantage of the Section 179 deduction in 2011, and (c) get Section 179 bonus cash as well.
Leasing and Section 179
Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? In fact, leasing equipment and/or software with the Section 179 deduction in mind is a preferred financial strategy for many businesses, as it can significantly help with not only cash flow, but with profits as well.
Non-Tax | Capital Lease
The main benefit of a non-tax capital lease is that you can still take full advantage of the Section 179 Deduction, yet make smaller payments. With a non-tax capital lease you can acquire and write off up to $500,000 worth of equipment this year, without actually spending $500,000 this year. A small business that is managing cash flow can leverage a non-tax capital lease and still take the Section 179 Deduction.
Examples of non-tax capital leases include a ‘$1 Buyout Lease’ and a ’10% Purchase Upon Termination (PUT) Lease’. In many cases, the amount you save in taxes will be MORE than the total of your first year’s payments.
Equipment Financing
You may also obtain an equipment loan using an Equipment Finance Agreement (EFA) and still take the Section 179 Deduction.
Advantages of Leasing and Financing
The obvious advantage to leasing or financing equipment and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction (you are reading this correctly - in many cases, the deduction will actually be profit).
Call today and discuss your next lease with a Premier Funding Service Expert!!! 770-500-3030
Fill out a one page application for up to $100,000 in a leasing line of credit and capture your deduction in 2011. www.pfglease.com
