Section 179 of the U.S. Internal Revenue Code allows businesses to deduct the cost of certain types of property as an expense rather than requiring the cost to be capitalized and depreciated. Two congressional acts passed late in 2010 (The Tax Relief Act of 2010 and The Jobs Act of 2010) affected Section 179 in a positive way.
The Section 179 deduction limit increased to $500,000 (from $250,000). The total amount of equipment that can be purchased or leased increased to $2 million. This includes most new and used capital equipment — as well as software. In addition, “bonus depreciation” increased to 100 percent on qualified assets.
The obvious advantage to leasing or financing equipment and then taking the Section 179 deduction is that an organization can deduct the full amount of the equipment, without paying the full amount this year. In some cases, the amount saved in taxes can actually exceed the payments, making this a very bottom-line-friendly deduction.
The Section 179 deduction is a tax incentive that is easy to use, and gives businesses an incentive to invest in themselves by adding capital equipment. In short, taking advantage of the Section 179 deduction will help businesses keep more capital, while also getting needed equipment and/or software.
To qualify for the Section 179 deduction, the equipment or software must be placed into service by Dec. 31, 2011. Organizations should consult a tax adviser to see what equipment will qualify for these extra tax incentives.
