Section 179

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The popular Section 179 deduction for equipment purchases has been expanded for 2013. As part of The American Taxpayer Relief Act of 2012, passed on January 1, 2013, the maximum deduction limit has been increased to $500,000. This limit is retroactive to purchases made in 2012. The first-year, 50 percent bonus depreciation, has also been extended.

Throughout 2012, the stated limit for the deduction against taxable income for qualifying new and used equipment was $139,000, with a maximum investment limitation of $560,000. For 2013 the deduction was scheduled to drop to $25,000, with a maximum investment limitation of $200,000, and the bonus depreciation would be eliminated. However, the deduction limit has instead been raised to the $500,000 limit that was previously in place for 2010 and 2011, with the maximum investment limitation of $2,000,000.

2013 and 2012 (Retroactive) Deduction Limit = $500,000
2013 and 2012 (Retroactive) Limit on Capital Purchases = $2,000,000
2013 and 2012 (Retroactive) Bonus Depreciation = 50%

Section 179 includes a ceiling that will reduce the deduction when various spending limits are reached. The amount available to be expensed is reduced dollar for dollar for the amount of qualifying capital expenditures in excess of the ceiling. Therefore, the 179 expensing is not available in 2013 and 2012 if qualifying expenditures exceed $2,500,000 ($500,000 + $2,000,000). In addition, Section 179 expense is limited to taxable income and cannot create a taxable loss for the taxpayer.

Section 179 Deduction is available for most new and used capital equipment, and also includes certain software.

Lease expenses also may be available for deductions through Section 179, depending on the structure of the lease.

Bonus Depreciation can be taken on new equipment only (no used equipment, no software)

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in 2013 or 2012.

*Disclaimer: ModernPractice.org does not provide tax, legal or accounting advice. Customers are strongly encouraged to seek and consult their own tax professional advisors for advice on the proper tax treatment of these transactions.

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Last modified: November 19, 2013

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