What Kind of Deductions Qualify Under IRS Section 179?
Section 179 of the Internal Revenue Code is an accelerated depreciation deduction provision that allows you to deduct all or part of the cost of certain property during the year you first use it, instead of depreciating it gradually over its useful lifetime. Only certain types of property qualify under Section 179.
To qualify for a Section 179 deduction, your property must be purchased, not leased, and you must have purchased it for business rather than personal use. You must place the property in service during the year in which you claim the deduction. Examples of qualifying property include machinery and equipment, appliances, office equipment, livestock, off-the-shelf computer software, petroleum storage facilities and most other forms of tangible property other than buildings. Certain real property also qualifies, including certain leasehold improvement property, restaurant property and retail improvement property.
Except for the items mentioned in Section 1, land and land improvements don't qualify for the Section 179 deduction. Moreover, even if you purchased otherwise eligible property, you generally can't use the deduction if you lease the property to someone else. Other ineligible property includes certain types of property used to provide lodging, as well as "energy property" — certain types of solar, geothermal and fuel cell equipment.
As of publication, the Section 179 deduction limit is $500,000 per taxpayer, even if the value of your qualifying property exceeds this amount. Your real property deduction cannot exceed $250,000. If the value of your qualifying property exceeds your maximum deduction, you may depreciate the amount you didn't deduct under Section 179 in future tax years gradually, over the remaining useful life of the property. If you claim a Section 179 depreciation deduction on more than one property, you may allocate the accelerated depreciation deduction among the properties as you see fit. The Section 179 deduction begins phasing out once you place more than $2 million in qualifying property into service during a single tax year. It disappears entirely once you place at least $2.5 million into service during a single tax year.
You claim the Section 179 deduction using Form 4562 and your ordinary income tax return (Form 1120 or 1120S for corporations, for example). You are required to keep written records showing how you acquired the property, whom you acquired it from and when you placed it into service. You can revoke your election by filing an amended tax return.
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.