Tax Tip: Depreciation Deduction
January 12, 2011 | No. 25 

Section 179 Depreciation Deduction

If you’re a business owner, you are probably familiar with Section 179 and its benefits.  Section 179 allows business owners to fully deduct certain equipment purchases in the year they were purchased rather than depreciating the expense over several years.  To qualify, property must be used more than 50% in a trade or business and be acquired from an unrelated party.

Under The Small Business Jobs Act, you can now write off up to $500,000 of qualified business assets placed in service in tax years beginning in 2010 & 2011.  Without this law the maximum deduction would have been $250,000.  The maximum deduction phases out dollar-for-dollar for purchases exceeding a specified threshold.

The Small Business Jobs Act also extends a Recovery Act provision for Section 168 “Bonus Depreciation” allowing for up to 50% of the cost of new assets to be depreciated in the year of purchase.

The Small Business Act also allowed for up to $250,000 of “Qualified Real Property” to be Section 179 property if elected for tax years beginning in 2010 and tax years beginning in 2011.  Qualified Real Property is: 1) Leasehold improvement property  2) Restaurant property and 3) Qualified retail property.  These rules may lead to increased depreciation deductions that are available to certain taxpayers; the rules are complex and interact with other depreciation rules.

Carryover of Section 179 depreciation on Qualified Real Property to tax years beginning after 2011 is not allowed, so planning with Section 179 is important this year.

We, of course, will be applying these developments to our existing clients’ situations this upcoming tax season.

Call us if we may be of assistance.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.