Section 179 of the IRS tax code simplifies the process of encouraging businesses to invest in equipment and themselves.
To help explain its mechanics, benefits, limitations, and eligibility criteria, we’re sharing the top takeaways from the ever-changing tax deduction.
Previously, businesses depreciated qualifying equipment over time. For instance, a $50,000 machine might result in a $10,000 deduction annually for five years.
Now, Section 179 lets businesses deduct the entire purchase price of eligible commercial medium and heavy-duty equipment in the current tax year.
This deduction has significantly impacted companies and the economy. It allows businesses to invest in needed equipment immediately instead of waiting. Small businesses can write off up to $1,160,000 of qualifying equipment costs on their 2023 tax return.
Section 179 has limits: $2,890,000 for equipment purchases and $1,160,000 for deductions. The deduction gradually diminishes after $2,890,000 is spent, disappearing entirely at $4,050,000 in purchases, making it ideal for small and medium-sized businesses.
To qualify for the deduction, any business purchasing, financing, or leasing new or used equipment in 2023, provided their spending remains below $4,050,000, and the equipment must be placed into service between January 1, 2023, and December 31, 2023.
Bonus depreciation remains an option; however, it differs from Section 179 by being variable, standing at 80% for 2023. Large businesses exceeding the $2,890,000 spending cap benefit from Bonus Depreciation.
Equipment must be used for business purposes over 50% of the time to qualify for the Section 179 Deduction. Multiply the equipment cost by the business use percentage to calculate the eligible amount for Section 179.
To fully leverage this tax deduction and its benefits for your business, we highly recommend reviewing Section 179 at a Glance.