Section 179 Deduction is a powerful tax tool designed to help small and medium-sized businesses reduce their tax liability by allowing them to deduct the full purchase price of qualifying equipment or property in the year it's bought. This deduction is particularly beneficial for businesses that invest in tangible assets like machinery, vehicles, and computers.
The primary goal of Section 179 is to encourage business growth by enabling companies to write off the cost of new or used equipment immediately rather than spreading the deduction over several years through depreciation. This immediate tax benefit can significantly improve cash flow and allow businesses to reinvest in other areas such as hiring, expansion, or research and development.
However, the benefits of Section 179 are not unlimited. The deduction has annual limits, and it starts to phase out when total purchases exceed certain thresholds. For example, if your business spends more than $2.62 million on qualifying equipment in a single year, the deduction begins to decrease dollar-for-dollar until it reaches zero at $3.67 million.
It's important to understand that Section 179 applies only to equipment and property used in your business. Land, personal use items, and vehicles that don't meet specific criteria may not qualify. Additionally, the IRS has strict rules about how and when you can claim this deduction, so it's always wise to consult with a tax professional to ensure compliance.
Many businesses take advantage of Section 179 during the fourth quarter to maximize their tax savings before the end of the fiscal year. This often leads to increased sales of heavy equipment and machinery as companies look to optimize their financial position.
To help you calculate your potential Section 179 deduction, we’ve created a free downloadable spreadsheet. This tool allows you to input your equipment costs and see how much you could save in taxes for the current year.
Here are the links to our calculators:
We recommend downloading the Microsoft Excel version so you can customize the spreadsheet to fit your business needs. The cells that you should modify are highlighted in light green. Make sure to update all relevant fields to get an accurate calculation of your potential tax savings.
Section 179 Deduction is subject to specific limitations set by Congress. Each year, businesses can deduct up to $1.05 million on qualifying equipment, but this limit decreases when total purchases exceed $2.62 million. Once purchases reach $3.67 million, the deduction is completely eliminated for that year.
These limits are based on the total value of equipment purchased in a single tax year. If your business exceeds the threshold, you might consider spreading your purchases across two tax years to maximize the deduction. Always consult with a tax advisor to determine the best strategy for your business.
The chart below illustrates how the deduction phases out as equipment purchases increase beyond the $2.62 million threshold.
Source: Equipment Radar and IRS
Takeaway: The Section 179 Deduction benefit phases out dollar-for-dollar above $2.62 million.
The IRS provides detailed guidance on Section 179 deductions in Publication 946. This publication outlines the rules and requirements for claiming the deduction. You can find the official form here.
Since tax laws can change from year to year, it’s essential to review the latest IRS guidelines annually. The deduction amount typically increases over time to reflect inflation and economic changes.
Most tangible property used in a business qualifies for Section 179, including machinery, vehicles, furniture, and equipment. Intangible property such as computer software and patents may also qualify.
To be eligible, the property must meet the following criteria:
Equipment such as tractors, excavators, and construction machinery typically qualifies. However, land and personal vehicles generally do not.
Land itself cannot be depreciated because it does not wear out or lose value over time. However, certain improvements made to the land, such as landscaping or irrigation systems, may qualify for depreciation.
The IRS has specific rules for SUVs and other on-road vehicles. For example, the deduction for heavy SUVs is limited to $25,900 in 2020. This rule applies to vehicles rated between 6,000 and 14,000 pounds gross vehicle weight.
If you buy a used Caterpillar D8 crawler dozer for $150,000 and use it 100% for business, you can deduct the full $150,000 under Section 179, provided your total purchases are under the $1.05 million limit.
If a tractor is used 80% for business and 20% for personal use, you can only deduct 80% of its cost under Section 179.
Only the owner of the equipment can claim Section 179. If you rent a power generator, you can deduct the rental expense as a business expense, but not under Section 179.
A new John Deere 870G excavator costing less than $1.05 million can be fully deducted under Section 179.
Transportation costs associated with purchasing a crane can be included in the total acquisition cost for Section 179 purposes.
While this article aims to provide general information about Section 179, it is not intended as tax advice. Always consult a qualified tax professional to ensure you’re complying with current regulations and maximizing your deductions.
Tax laws and interpretations change frequently, and a professional can help you navigate these updates effectively.
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What Is Section 179 Deduction?
Section 179 Deduction Calculator
Calculator Directions
Understanding Deduction Limitations
Historical IRS Section 179 Deduction Levels
Year
Section 179
Deduction
Deduction
Limit
2021
$1,050,000
$2,620,000
2020
$1,040,000
$2,590,000
2019
$1,000,000
$2,500,000
2018
$1,000,000
$2,500,000
2017
$500,000
$2,000,000
2016
$500,000
$2,000,000
2015
$500,000
$2,000,000
2014
$500,000
$2,000,000
2013
$500,000
$2,000,000
2012
$500,000
$2,000,000
2011
$500,000
$2,000,000
2010
$500,000
$2,000,000
2009
$250,000
$800,000
2008
$250,000
$800,000
2007
$125,000
$500,000
IRS Guidelines (Publication 946)
Where To Find IRS Forms & Official Guidance
What Equipment Qualifies?
Land / Farmland
Sport Utility Vehicles (SUVs) & Other On-Road Vehicles
Section 179 Examples For New & Used Heavy Equipment Purchases
Example 1: Used Construction Crawler Dozer Purchase
Example 2: Compact Tractor Purchase Used For Business & Personal Purposes
Example 3: Power Generator Equipment Rental
Example 4: New John Deere 870G Construction Excavator Purchase
Example 5: Purchase A Used Grove Crane Over 2,000 Miles Away
Important Note
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