The §179 deduction is available for most new and used capital equipment, vehicles, and includes certain software used in a trade or business or held for the production of income. The modified accelerated cost recovery system (MACRS)* is generally used to depreciate tangible property** unless the taxpayer elects to expense the item under §179. The amount expensed under §179 cannot exceed the trade or business taxable income for the tax year. §179 amounts exceeding the taxable income limit may be carried forward to a succeeding tax year; however, limitations may apply.
The maximum deduction limit for the tax year 2017 was $510,000, and the limit on capital purchases was $2,030,000. The Tax Cuts and Jobs Act increased the maximum deduction limit for 2018 to $1,000,000 and the limit on capital purchases to $2,500,000. Years after 2018 will be adjusted for inflation. The 2019 inflation-adjusted amounts are indicated below.
The order for depreciation is:
Bonus Depreciation, then
§179 Deduction Reduced
The amount of §179 deduction is reduced or eliminated if:
The cost of qualifying §179 property placed in service for the tax year 2019 exceeds $2,550,000. Taxpayers are required to reduce the dollar limit by the amount of the costs exceeding $2,550,000, but not below $0. The taxpayer is not eligible for the §179 deduction if the cost of the property placed in service in the tax year 2019 is $3,550,000 or more.
The property placed in service is used for personal use and business use. Only the business use portion of the cost of the property would be eligible for the §179 deduction. To be eligible for the §179 deduction, the property must be used more than 50% in the year placed in service.
Business use of a property fall below 50% for future years, the taxpayer must recapture the applicable portion of the previously deducted §179 deduction.
Married Filing Separately taxpayers combine purchases as if they were filing jointly to calculate the allowable §179 deduction; the deduction, otherwise, is $1,020,000 for each taxpayer.
*(MACRS) A method of depreciation that replaced the Accelerated Cost Recovery System (A method of depreciation that depreciates an asset using recovery periods instead of useful life). (ACRS) the asset is depreciated over a longer life than with ACRS.
**Property the taxpayer can see or touch, such as buildings, machinery, vehicles, furniture, and equipment.