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IRS Section 179 Tax Deduction Explained
Did you know that you can deduct the entire purchase price of test equipment and software purchased during the tax year? With the Section 179 tax deduction, you can buy or finance qualifying equipment and deduct the full purchase price from your gross income, up to $1,000,000. That's right, you get to write off the entire equipment purchase price during the year you buy it.
This government developed incentive was designed to encourage business growth and provide tax relief. Taking the cost of the equipment as an immediate expense deduction allows you to get an immediate break on your tax burden instead of depreciating the asset with smaller deductions over a longer period of time. You can take advantage of Section 179 to purchase needed equipment right now, rather than requiring the cost of the property to be capitalized and depreciated over a longer period of time.
What Qualifies?
Businesses that purchase new or used equipment to use for business purposes should qualify. Yes, even used equipment qualifies as long as it is “new to you.” As long as the equipment is used at least 50% for business use.
Example:
| Equipment Purchase: | $20,000 |
| Section 179 Deduction: | $20,000 |
| Normal 1st Year Depreciation: | $0 |
| Total 1st Year Deduction: | $20,000 |
| Cash Savings: | $4,200 ($20,000 x 21% tax rate) |
| _____________________ | |
| Total Cost of Equipment: (After tax savings) |
$15,800 (Assuming 21% tax bracket) |
Disclaimer: Section 179 deductions are complicated. The information in this article, and on this site, is not intended to be tax or legal advice. Each business situation is different and tax regulations change frequently. Please consult your tax professional before buying equipment with the intent to take a Section 179 deduction.
