Enchanced Sec 179 - Job Act of 2010....Zted
The fourth economic stimulus act impacting Section 179 was H.R. 5297, otherwise referred to as the 'Jobs Act of 2010'. The act substantially increased the amount a business can write-off from $250,000 to $500,000 of qualified capital expenditures -- subject to a phase-out once these expenditures exceed $2,000,000 -- for tax years 2010 as well as 2011.
For those large businesses that exceed the $2 million cap, the 'Jobs Act of 2010' also extended the additional, first-year 50% Bonus Depreciation to qualifying property purchased and placed in service during the 2010 tax year. Again, it’s worth noting this Act did not extend 50% Bonus Depreciation for the following tax year 2011.
(signed 12-17-2010)
The fifth and most recent economic stimulus act impacting section 179 is H.R. 4853, otherwise known as the 'Tax Relief Act of 2010'. This Act extends and expands the Bonus Depreciation available to businesses spending more than $2 million on capital equipment to write-off 100% of the cost.
Some smaller businesses that are not profitable in 2011 may also use Bonus Depreciation because the loss created by the deduction can be carried forward into future years that the business may become profitable. One large limitation on Bonus Depreciation is that it is only available on new equipment (used equipment does not qualify).
The Section 179 Deduction has been significantly enhanced for the tax year 2011 - giving businesses an incentive to invest in themselves by purchasing, financing or leasing new equipment.
The specific impact these Stimulus Acts have had on the Section 179 deduction is related to the dollar limits of the deduction. The most current Stimulus Act raised these limits significantly. The new deduction limits became $500,000 on the deduction, and the total amount of equipment purchased could not exceed $2,000,000.
To recap the limits by tax year:
2007 Deduction Limit: $125,000
2008 Deduction Limit: $250,000
2009 Deduction Limit: $250,000
2010 Deduction Limit: $500,000
2011 Deduction Limit: $500,000
Deduction decreases dollar-for-dollar after totals reach the following:
2007 Total Amount of Equipment: $500,000
2008/2009 Total Amount of Equipment: $800,000
2010/2011 Total Amount of Equipment: $2,000,000
Another change that the 'Economic Stimulus Act of 2008' brought to Section 179 is it offered a one-time “bonus first year depreciation” on qualifying equipment. Recently, the Tax Relief Act of 2010 increased Bonus Depreciation to 100% of new equipment cost. This is after the above deduction limit of $2 million in total equipment, vehicles, and/or software cost is reached.
In other words, if you buy enough equipment to exceed the $500,000 deduction, you can take a “bonus” 100% depreciation on the rest - (Section 179 Deduction Chart).
Please keep in mind that to qualify for the Section 179 Deduction, the below equipment must be purchased and put into use between January 1, 2011 and December 31, 2011.
- Equipment (machines, etc) purchased for business use
- Tangible personal property used in business
- Business Vehicles with a gross vehicle weight in excess of 6,000 lbs (Section 179 Vehicle Deductions)
- Computers
- Computer Software ( "Off-the-Shelf" Software)
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)
- Partial Business Use (equipment that is purchased for business use and personal use - generally, your deduction will be based on the percentage of time you use the equipment for business purposes).
As we previously mentioned, most equipment will qualify for the Section 179 Deduction. Some of the property and equipment that does not qualify for the Section 179 Deduction is listed below.
- Real Property does not qualify for the Section 179 Deduction. Real Property is typically defined as Land, Buildings, Permanent Structures and the components of the Permanent Structures (including improvements). Some other examples that would not qualify for the Section 179 Deduction include paved parking areas and fences.
- Air conditioning and heating equipment is generally not eligible for the Section 179 Deduction.
- Property used outside the United States generally does not qualify for the Section 179 Deduction.
- Property that is used to furnish lodging is generally not qualified for the Section 179 Deduction.
- Property acquired by gift or inheritance, as well as property purchased from related parties does not qualify for the Section 179 Deduction (No, you can't sell equipment to yourself and qualify for Section 179).
- Any property that is not considered to be personal property, may not qualify for the Section 179 Deduction.
- Used Equipment (that is new to you) qualifies for Section 179, however used equipment does not qualify for Bonus Depreciation.
Note> The 'Small Business Jobs & Credit Act of 2010' allows taxpayers to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. This provision is new.
One of the more popular uses of the Section 179 Deduction has been for vehicles. In fact, several years ago the Section 179 deduction was sometimes referred to as the “Hummer Tax Loophole”, because at the time it allowed businesses to buy large SUV’s and write them off. While this particular use (or abuse) of the tax code has been modified with the limits explained below, it is still true that Section 179 can be advantageous in buying vehicles for your business.
Vehicles used in your business qualify - but certain passenger vehicles have a total depreciation deduction limitation of $11,060, while other vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes qualify for full Section 179 deduction. Here are the general guidelines for using the Section 179 Deduction for vehicle purchases (full policy statement available at: IRS.gov ).
The IRS will release guidance concerning Section 179 and Bonus Depreciation as it relates to vehicles for the year 2011. The guidance will be published in the Internal Revenue Bulletin in early 2012. So be patient, and check back here often for the release date.
There are a number of qualifications for vehicles, all with varying tax treatment - please refer to page 6 of these Instructions for Form 2106 to read the exact IRS language.
For passenger vehicles, trucks, and vans (not meeting the guidelines below) that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction as well as Bonus Depreciation is limited to $11,060 for cars and $11,160 for trucks and vans.
Exceptions include the following vehicles:
- Ambulance or hearse used specifically in your business;
- Taxis, transport vans, and other vehicle used to specifically transport people or property for hire;
- Qualified non-personal use vehicles specifically modified for business (i.e. van without seating behind driver, permanent shelving installed, and exterior painted with company’s name).
Limits for SUVs or Crossover Vehicles with GVWR above 6,000lbs
Certain vehicles - with a gross vehicle weight rating above 6,000 lbs but no more than 14,000 lbs - qualify for expensing up to $25,000 if the vehicle is financed and placed in service prior to Dec 31st and meets other conditions.
Many vehicles that by their nature are not likely to be used for personal purposes qualify for full Section 179 deduction including the following vehicles:
- Heavy “non-SUV” vehicles with a cargo area at least six feet in interior length (this area must not be easily accessible from the passenger area.) To give an example, many pickups with full-sized cargo beds will qualify (although some "extended cab" pickups may have beds that are too small to qualify).
- Vehicles that can seat nine-plus passengers behind the driver's seat (i.e.: Hotel / Airport shuttle vans, etc.).
- Vehicles with: (1) a fully-enclosed driver's compartment / cargo area, (2) no seating at all behind the driver's seat, and (3) no body section protruding more than 30 inches ahead of the leading edge of the windshield. In other words, a classic cargo van.
Vehicles can be new or used (“new to you” is the key).
The vehicle can be financed with certain leases and loans, or bought outright.
The vehicle in question must also be used for business at least 50% of the time - and these depreciation limits are reduced by the corresponding % of personal use if the vehicle is used for business less than 100% of the time.
Remember, you can only claim Section 179 in the tax year that the vehicle is "placed in service" - meaning when the vehicle is ready and available - even if you're not using the vehicle. Further, a vehicle first used for personal purposes doesn't qualify in a later year if its purpose changes to business.
Most small and medium-size businesses find these new dollar limits generous indeed. The Economic Stimulus Acts helped consumers, and it also continues to significantly help many small businesses as well by lowering the cost of equipment they need to purchase or lease to run their day-to-day operations. To see how much you could save in 2010, use this Section 179 Tax Calculator.
As of this writing, the 'Small Business Jobs and Credit Act of 2010' has extended the increased limits through the end of tax year 2011. Unless it is extended, the Section 179 Deduction phases out after 2012, so if you want to take advantage of the higher limits in the 2011 tax year, you need to act before the end of this year.
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