SECTION 179 Details
Many business owners are unaware that the acquisition of equipment under a $1 purchase option lease or Equipment Finance Agreement (EFA) qualifies for the tax break provided under Section 179 of the Internal Revenue Code.
Subject to limitations, Section 179 allows taxpayers to take an outright deduction equal to the full purchase price of qualifying equipment purchased during the tax year, and a $1 purchase option lease or EFA is considered a purchase under the Internal Revenue Code.
The limitations on the deduction for your tax year includes:
- an aggregate cap on the Section 179 deduction of $1,000,000
- a dollar-for-dollar reduction in that cap to the extent that the cost of qualifying equipment placed by the taxpayer during the tax year exceeds $2.5 million
- the deduction cannot reduce taxable income below $0
- other applicable limitations
Qualified property for the Section 179 deduction includes:
- Tangible, personal property
- Computer software
- Some listed property
- Qualified improvement property
BONUS DEPRECIATION Details
Bonus depreciation is a tax incentive that allows small- to mid-sized businesses to take a first year deduction on purchases of qualified business property in addition to other depreciation. In the year qualified property is purchased and put into use, a business is allowed to deduct 100% of the cost of the property in addition to other depreciation that is always available. Both the $1 Purchase Option Lease and Equipment Finance Agreement (EFA) are eligible for this deduction, and new and used equipment qualify. Starting in 2023 this will go down to 80%, in 2024 to 60%, in 2025 to 40%, and in 2026 to 20%.
Qualified property (or assets) includes:
- Property depreciated under the Modified Accelerated Cost Recovery System (MACRS) that has a recovery period of 20 years or less
- Computer software
- Water utility property
- Qualified film or television productions
- Qualified live theatrical productions
- Specified plants
- Qualified improvement property
- Some listed property
As a partner in IT and cybersecurity, we think it is important to let you know about ways that your organization can benefit from programs and specials to achieve outstanding IT projects. The Section 179 and bonus depreciation tax breaks are examples of ways that you can help your bottom line while improving your IT infrastructure and security.
Every business is different so as always, be sure to consult your tax accountant to ensure this will apply to your business.