Section 179 Depreciation

Tax code “section 179” is a recently implemented program courtesy of the US government that says: “any qualifying piece of property that a business entity purchases, can be written off for the full purchasing price”.

Ok then, according the IRS, a depreciation deduction is a reasonable allowance for the exhaustion, wear, and tear. (Including a reasonable allowance for obsolescence.)

This would include:

Property used in a trade or business
Property used for production of income
Land is never depreciable
A mixed use asset (but not the personal part)

Now under the current tax laws there are a few methods to calculate your own depreciation, these include:

A regular MACRS (Modified Accelerated Cost Recovery System)
A straight line method over the MACRS recovery period
Or, Straight-line over the Alternative Depreciation System (ADS) recovery period

So basically, the method you approach is going to depend on whether you’d like to maximize your deduction for that first year or not, which is essentially what section 179 is all about.

There are different rules when filing for the section 179:

A husband and wife will be considered one entity
You can claim a deduction for the cost of qualifying property acquired for use in a trade or business
You cannot claim the deduction on property you hold only for the production of income
An estate or trust cannot claim the deduction
The maximum deduction is $128,000

The total cost that you can deduct each year is limited to the taxable income from the active conduct of any trade or business during the year. Taxable income includes salaries and wages, gains, (losses), or income from a sole proprietorship, and any trade or business income allocated to you from a partnership or S corporation in which you actively.

So if you’d like to get some big bucks back from some major business expenses this year, you should elect to file the 179 deduction, because this will not automatically be done for you.

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