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Tax Reform and the Section 179 Deduction

By: Zac Anderson, Staff Accountant

With the passing of the Tax Cuts and Jobs Act late last year, there will be many new changes that will affect taxpayers and businesses. One of the items has changed is the popular Section 179 expense.

What is Sec. 179 expense?

The original intent for the Section 179 expense was to aid small to medium-sized businesses with tax relief and to enable investment back into their business. Section 179 allows a business to deduct the full price of qualifying property in the year it is purchased and placed in service, rather than recovering the cost of the asset by depreciation over the useful of the asset.

For the 2017 tax year, the maximum amount that can be expensed is $510,000 of the cost of the qualifying property placed in service that year. This amount is to be reduced by the amount of qualifying property placed in service during the year that exceeds $2,030,000. For example, if the total amount of assets purchased and placed in service for the year was $2.1million, the Section 179 deduction would be $440,000 ($510,000 – ($2,100,000 – $2,030,000)). Historically, these amounts change slightly year-to-year to adjust for inflation.

Qualifying property is defined as depreciable tangible personal property or computer software. Some types of qualified real property fall into this as well.  There are special limitations for vehicles that have business use that exceeds 50%. For most cars, trucks, and vans the Section 179 deduction is limited to $11,060. Other certain vehicles weighing above $6,000 lbs, but no more than 14,000 lbs. qualify up to a $25,000 limitation.

Section 179 Changes

Beginning for the tax year 2018, the maximum amount that can be expensed for all qualifying property placed into service jumps up to $1 million and the phase-out threshold increases up to $2.5 million. There is also a slight expansion to qualified real property eligible for Section 179. These include depreciable property used primarily to furnish lodging, improvements to nonresidential real property after the date placed in service (roofing, heating/cooling systems, etc.).

The decision as to the timing to take Section 179 depreciation can be a great tax planning tool. Holbrook & Manter tax professionals are great resources to aid in the tax planning areas your company may need.