What is Section 179 and why is it important?
Section 179 of the IRS tax code has been around since 1981 and was developed as an
incentive for businesses to invest in their own growth. While it has been revised numerous
times over the years, the most recent changes take effect January 2, 2012 and allow
businesses to immediately deduct up to $139,000 on qualifying equipment and software
purchases, with the maximum amount that can be spent being raised to $560,000.
This type of incentive can yield substantial cash savings for a small business while helping to
provide access to the equipment that a business needs to expand. But the deduction isn’t
automatic; businesses need to do the proper paperwork. Below are answers to some of the
What Qualifies for Section 179?
Typically, all material goods qualify for the deduction. The catch is that the equipment must be
purchased AND put into use during the tax year. Some examples of qualifying purchase
• Capital equipment
• Business Vehicles (gross weight in excess of 6,000 lbs.)
• Office Equipment
Is the Section 179 deduction automatic?
NO! You will need to complete Part One of IRS form 4562. Make sure to work with your tax
professional to take advantage of this lucrative incentive for your business.
How much can I write-off?
For the 2012 tax year, businesses may take a 100% deduction on purchased or leased
equipment, as long as the total is below $139,000.
How was Section 179 affected by the various Stimulus Acts?
The last six years has seen significant changes in the Section 179 Deduction due to various
Stimulus Acts enacted by congress – most specifically related to the dollar limits of the
The limits by tax year:
- 2007 Deduction Limit: $125,000
- 2008 Deduction Limit: $250,000
- 2009 Deduction Limit: $250,000
- 2010 Deduction Limit: $500,000
- 2011 Deduction Limit: $500,000
- 2012 Deduction Limit: $139,000
Deduction decreases dollar-for-dollar after equipment purchase totals exceed the following:
- 2007 Total equipment purchases: $500,000
- 2008/2009 Total equipment purchases: $800,000
- 2010/2011 Total equipment purchases: $2,000,000
- 2012 Total equipment purchases: $560,000
How was Section 179 affected by the Tax Relief Act of 2010?
This act impacted the Bonus Depreciation available to businesses under Section 179. Effective
2012, there is 50% Bonus Depreciation available for new equipment purchases once the
$560,000 limit is reached (or for businesses reporting net losses in 2012).
What is the maximum deduction allowable?
The most recent stimulus, the Jobs Act of 2010, was truly focused on helping small and
medium businesses, raising the limit to $139,000 (from what would have been $125,000),
while simultaneously raising the Bonus Deduction to 50% for larger businesses that top out
over the $560,000 equipment limit.
When can I take advantage of Section 179 deductions?
To get the most from the current program changes, you will need to act fast. The deadline for
the purchase & deployment of eligible equipment is December 31, 2012. You will make the
deduction as you are filing your tax return for the year.
How do I determine my deduction?
Easy! The last page of this ebook spells out the math behind estimating your deduction and tax
savings. You can also use this online Section 179 calculator.
Is it better to purchase or lease to take advantage of Section 179?
Ultimately the buy vs. lease will depend on your businesses situation, but an important fact
about leasing is this: with the Section 179 deduction, you can write off 100% (up to $139,000)
of the price of your qualifying equipment but you don’t have to spend 100%.
This means that with a properly structured lease, your tax deduction can actually be more than
your first year of payments.
Ref. Direct Capital