High Speed Telecom, LLC

What is Section 179?

If you own a small-medium business, the Section 179 deduction is one of the most essential tax codes you need to be familiar with. It lets you deduct a portion or the entirety of the cost for essential equipment purchased or financed and put into place before December 31, 2022.

Section 179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed in service. For tax years beginning after 2017, the TCJA increased the maximum Section 179 expense deduction from $500,000 to $1 million. The phase-out limit increased from $2 million to $2.5 million. These amounts are indexed for inflation for tax years beginning after 2018.

The only stipulation is that the equipment needs to qualify for the deduction. Your tax consultant can help you verify if your business purchase qualifies.

What happens after December 31st, 2022?
Time is running out to qualify for the full benefit of one of the Tax Cuts and Jobs Act’s (TCJA) most significant provisions: 100% bonus depreciation on a wide variety of assets that are considered “qualified property.” The TCJA extended bonus depreciation rules that were set to expire at the end of 2019 and increased the deductible amount to 100% for assets placed in service after Sept. 27, 2017, and before Jan. 1, 2023. Unless the law changes, the bonus percentage will decrease by 20 points each year over the next few years until it eventually phases out completely.

2022 = 100%
2023 = 80%
2024 = 60%
2025 = 40%
2026 = 20%
2027 = 0%

Limits of Section 179

The current deduction limit is $1,000,000 on qualifying equipment, and the limit on equipment purchases has increased to $2.5 million. This was enacted through the Tax Cuts and Jobs Act.

In addition, the bill allows businesses to depreciate 100 percent of the cost of eligible equipment bought or financed from September 27, 2017, through 2022. Lastly, bonus depreciation now applies to used equipment.

Knowing the changes to the Section 179 tax deduction for each tax year is helpful as you plan your business purchases.

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