Section 179 tax deduction updated

The section 179 property depreciation rules have been updated starting for tax year 2015. Read this article to learn more.

The "Protecting Americans from Tax Hikes Act of 2015" (PATH Act) passed both houses of Congress and was signed into law on 12/18/2015. Of significance to small businesses is the PATH Act's amendment to section 179.

Under section 179, a business may elect to deduct the cost of qualifying property, up to a certain amount, in the year it was placed into service. This is a change over prior law which required the deduction to be taken over a period of time over the useful life of the property through depreciation deductions.

The PATH Act was made retroactive to the 2015 tax year.

What property is eligible for the section 179 deduction?

For property to qualify for the section 179 deduction, it must be eligible property purchased for business use.

Eligible property includes, among other things, tangible depreciable personal property, such as equipment and machinery; off-the-shelf computer software; and certain qualified real property. Your attorney can explain to you further what real property may or may not be eligible for the section 179 deduction.

Property acquired for business use does not include property acquired solely for the purpose of producing income. If a piece of property is acquired for both business and personal use, it is only eligible for the 179 deduction to the extent it is used for business purposes, in excess of 50 percent. Thus, if it is used less than 50 percent of the time for business, it is not eligible for the section 179 deduction.

Property must also be acquired by purchase. This means property acquired by gift or inheritance does not qualify for the section 179 deduction. Similarly, property acquired from a related person does not qualify for the deduction.

How much can I deduct under section 179?

The amount one can deduct under section 179 is subject to a dollar limit and a business income limit.

The dollar limit is $500,000. If you purchased and put into service more than one piece of qualifying property in the same year, you can allocate the deduction among the property in any way you choose, provided the deduction does not exceed $500,000. You do not have to claim the full $500,000 deduction.

Speak to a California tax litigation lawyer today

The California Tax Litigation Law Offices of Scott Kauffman focuses on helping businesses and individuals contacted by the IRS or California tax authorities. If you have any questions or concerns about the section 179 tax deduction or any other tax matter for which you may have been contacted, call our office today to schedule a consultation.