Now that the dust has settled from the Fiscal Cliff Deal, small business owners may be the real winners from the months’ long hand wringing and stalled debt ceiling negotiations.
As part of the U.S. American Taxpayer Relief Act approved by Congress on January 2, 2013, the New York Times reported that businesses can continue to “fully expense many items in just one year, instead of over five years or more. The amount of investment eligible for immediate expensing grew to $500,000 in 2010 and 2011, but was to fall to $139,000 in 2012 and $25,000 in 2013. The new law extends the $500,000 limit through 2013, and pushes the $24,000 cap to 2014. Section 179 is available only to companies with total capital expenditures for the year under a certain threshold – $2 million through 2013 and $200,000 starting in 2014.”
Section 179 of the IRS Code was enacted to help small businesses take a depreciation deduction for capital expenditures in one year, rather than depreciating them over a longer period of time. By taking the full deduction for the cost of the asset immediately, rather than being required to spread out the deduction over the asset’s useful life, businesses can realize a substantial tax savings.
What Kind of Equipment Does Section 179 Apply To?
Small businesses may deduct the cost of certain new and used equipment including tangible personal property. According to the IRS to qualify for the section 179 deduction, your property must be one of the following types of depreciable property:
1. Tangible personal property.
2. Other tangible property (except buildings and their structural components) used as:
- An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services,
- A research facility used in connection with any of the activities in (a) above, or
- A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities
3. Single purpose agricultural (livestock) or horticultural structures. See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures.
4.Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.
5. Off-the-shelf computer software.
Furthermore, the IRS publication “ Bonus Depreciation and Increased Section 179 Deduction under the American Recovery and Reinvestment Act” also states:
To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify.