Section 179 at a Glance for 2020

2020 Deduction Limit = $1,040,000

This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2020, the equipment must be financed or purchased and put into service between January 1, 2020 and the end of the day on December 31, 2020.

 

2020 Spending Cap on equipment purchases = $2,590,000

This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $3,630,000 on equipment won’t get the deduction.)

 

Bonus Depreciation: 100% for 2020

Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. The Bonus Depreciation is available for both new and used equipment.

 

The above is an overall, “birds-eye” view of the Section 179 Deduction for 2020. For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing, please read this entire website carefully. We will also make sure to update this page if the limits change.

Here is an updated example of Section 179 at work during the 2020 tax year.

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What is the Section 179 Deduction?

2019 ccckc section 179 savings example illustration graphicMost people think the Section 179 deduction is some mysterious or complicated tax code. It really isn’t, as you will see below. Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves. Several years ago, Section 179 was often referred to as the “SUV Tax Loophole” or the “Hummer Deduction” because many businesses have used this tax code to write-off the purchase of qualifying vehicles at the time (like SUV’s and Hummers). But that particular benefit of Section 179 has been severely reduced in recent years (see ‘Vehicles & Section 179‘ for current limits on business vehicles.) However, despite the SUV deduction lessened, Section 179 is more beneficial to small businesses than ever. Today, Section 179 is one of the few government incentives available to small businesses, and has been included in many of the recent Stimulus Acts and Congressional Tax Bills. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses – and millions of small businesses are actually taking action and getting real benefits.

Here's How Section 179 Works:

In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example).

Now, while it’s true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.

And that’s exactly what Section 179 does – it allows your business to write off the entire purchase price of qualifying equipment for the current tax year.

This has made a big difference for many companies (and the economy in general.) Businesses have used Section 179 to purchase needed equipment right now, instead of waiting. For most small businesses, the entire cost of qualifying equipment can be written-off on the 2020 tax return (up to $1,040,000).

Limits of Section 179

Section 179 does come with limits – there are caps to the total amount written off ($1,040,000 for 2020), and limits to the total amount of the equipment purchased ($2,590,000 in 2020). The deduction begins to phase out on a dollar-for-dollar basis after $2,590,000 is spent by a given business (thus, the entire deduction goes away once $3,630,000 in purchases is reached), so this makes it a true small and medium-sized business deduction.


Who Qualifies for Section 179? 

All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2020 should qualify for the Section 179 Deduction (assuming they spend less than $3,630,000).

Most tangible goods used by American businesses, including “off-the-shelf” software and business-use vehicles (restrictions apply) qualify for the Section 179 Deduction.

For basic guidelines on what property is covered under the Section 179 tax code, please refer to this list of qualifying equipment. Also, to qualify for the Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2020 and December 31, 2020.

For 2020, $1,040,000 of assets can be expensed; that amount phases out dollar for dollar when $2,590,000 of qualified assets are placed in service.

What's the Difference Between Section 179 and Bonus Depreciation?

Bonus depreciation is offered some years, and some years it isn’t. Right now in 2020, it’s being offered at 100%.

The most important difference is both new and used equipment qualify for the Section 179 Deduction (as long as the used equipment is “new to you”), while Bonus Depreciation has only covered new equipment only until the most recent tax law passed. In a switch from recent years, the bonus depreciation now includes used equipment.

Bonus Depreciation is useful to very large businesses spending more than the Section 179 Spending Cap (currently $2,590,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry-forward the loss.

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.

Section 179's "More Than 50% Business-Use" Requirement

The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.

Are Vehicles covered under Section 179?

There are limitations to which vehicles are covered under Section 179. For instance, most Section 179 requirements include the purchased or financed item must be used at least 50% of the time. But with some companies, that may be more or less. For specific IRS Guidelines regarding Section 179 tax please visit IRS Guidelines for Vehicles on the IRS Section 179 website.
Section 179 Requirement

Section 179 does have a 50% rule. The financed or purchased equipment and/ or software must be used at least 50% of the time or more by the company to qualify for the 179 Tax Deduction.
 

News Alert: The 2020 Section 179 Deduction Limit for Businesses is $1,040,000 

Jan 16, 2020 – The Section 179 deduction for 2020 is $1,040,000 dollars. This means U.S. companies can
deduct the full price of qualified equipment purchases, up to $1,040,000, with a “total equipment
purchase” limit of $2,590,000. The deduction includes both new and used qualified equipment.
In addition, businesses can take advantage of 100% bonus depreciation on both new and used equipment for the entirety of 2020. Please see our fully updated 2020 Section 179 Calculator to see how the Section 179 tax deduction can benefit your company in 2020.
 

News Alert: See the IRS Fact Sheet Issued for Section 179

IRS Fact sheet FS-2018-9 provides current info on Section 179 deductions, including the addition of
certain building improvements, the 100 percent bonus depreciation, changes to depreciation limitations
on vehicles used for business, new treatment of farm equipment, and the recovery period for real
property. Despite the 2018 date, the information is still current for 2020. Read the Fact sheet here: New Rules and Limitations for Depreciation and Expensing under the Tax Cuts and Jobs Act
 

2019 Section 179 Tax Information (Last Year)

The Section 179 deduction was $1,000,000 for 2019, with a 100% bonus depreciation in place as well. Tax Year 2019 Section 179 Calculator (Calculator for Last Year)
 

Answers to the Three Most Common Section 179 Questions

How Much Can I Save on My Taxes This Year?
It depends on how much qualifying equipment and software you purchase and put into use this year. We have a fully updated Section 179 Calculator that can show you your expected tax savings.

What Sort of Equipment Qualifies?
Most tangible business equipment, both new and used, qualifies. Click here for an updated list of qualifying property.

When Do I Have to Do This By?
Section 179 always expires at midnight, December 31st. So to take advantage of Section 179 this year, you must buy (or lease/finance) your equipment, and put it into use, by December 31st of this year.

***Note: In 2020, many businesses are finding Section 179 Qualified Financing to be a very attractive option, especially with several expected Federal Discount Rate increases looming. You can beat future increases by applying today.

Don’t miss out on this great tax benefit. To find out more, call us today! 913-341-0053

Learn All About the Section 179 Tax Deduction

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