Section 179 Tax Deduction

Section 179 at a Glance for 2023

2023 Deduction Limit = $1,160,000

This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2023, the equipment must be financed or purchased and put into service between January 1, 2023 and the end of the day on December 31, 2023.

2023 Spending Cap on equipment purchases

For tax year 2023, there is no cap on the amount that can be spent on equipment purchases to qualify for the Section 179 deduction. The only limitation is the maximum deduction amount of $1,160,000.

Bonus Depreciation: 100% for 2023

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

What is the Section 179 Tax Deduction?

The Section 179 tax deduction, referred to in the tax code under code Section 179, allows businesses to take a substantial deduction on qualifying asset purchases in the current tax year rather than depreciating the costs over several years. This “expensing election” provides an immediate business tax benefit and cash flow savings.

What Qualifies for the Section 179 Deduction?

To qualify for the Section 179 deduction, assets must be tangible, depreciable business property purchased for use in the active conduct of a trade or business during the current tax year. Eligible assets include:

  • Machinery and equipment
  • Computers, servers, laptops
  • Qualified software and cloud-based software
  • Office furniture, fixtures
  • Business vehicles with a gross vehicle weight under 14,000 lb
  • Partial deduction for heavy vehicles over 14,000 lb GVW
  • Off-the-shelf software
  • Storage facilities, racks, signage
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The Section 179 deduction also applies to expenses that improve the interior of qualified real property used for business, like roofs, HVAC, fire control systems, or security systems.

What are the Deduction Limits?

For 2023, the maximum Section 179 deduction is $1,160,000. So a business can deduct up to $1.16 million of the purchase price on qualifying equipment in the year of purchase.

The phase-out threshold starts at $2,870,000 in total spending. After this amount, the $1.16 million maximum deduction limit begins to be reduced on a dollar-for-dollar basis. Once $3,030,000 in total equipment purchases is reached, the Section 179 deduction limit phases out completely.

If spending more than the phase-out threshold, the excess equipment costs can be depreciated under normal tax depreciation rules and deducted across 3, 5, 7, or more years depending on the placed-in-service date and equipment type.

How is the Section 179 Deduction Claimed?

To claim the Section 179 tax deduction, file IRS Form 4562 detailing all eligible business equipment purchases for the tax year. Then the maximum $1.16 million deduction (or phase-out amount) can be taken as an expense on the net business income. For most small businesses structured as pass-through entities like Sole Proprietorships, Partnerships, LLCs, or S-corps, the deduction will flow directly through to the personal tax return of the business owner(s). So it can provide substantial personal tax savings in addition to the cash flow savings for the business itself.

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