Magazine article The National Public Accountant

The Code Sec. 179 Election to Expense Business Property

Magazine article The National Public Accountant

The Code Sec. 179 Election to Expense Business Property

Article excerpt

Small or medium-sized businesses, like yours, can elect, under Code Sec. 179, to "expense" the cost of eligible depreciable business property. Under the election, you are allowed to deduct the full cost of eligible property in the year in which it is placed in service, instead of deducting the cost over the required depreciation period (usually three, five, or seven years, but sometimes longer).

Here is a quick review of the "basics" of the election:

You can make the election for the cost of non-customized computer software and most equipment used in a business. The election is subject to an annual, inflation-adjusted dollar limit that decreases by a dollar for every dollar of eligible property that you place into service in excess of an annual, inflation-adjusted amount (the phase-down amount). For tax years beginning in calendar year 2005, the dollar limit is $105,000 and the phase-down amount is $420,000, with the result that a taxpayer who places into service $430,000 of eligible property is limited to an election to deduct no more than $95,000 (i.e., $105,000 minus $10,000, which is the excess of $430,000 over $420,000). Unless the tax code is changed by Congress, the preceding rules will become considerably more restrictive for tax years beginning after calendar year 2007. Software will no longer be eligible for the election, the dollar limit will be $25,000 (not adjusted for inflation) and the phase-down amount will be $200,000 (not adjusted for inflation).

Here are some other things to keep in mind:

* If you place into service property in excess of the annual limit, and your goal is to accelerate tax deductions to the maximum, it is generally preferable to make the election for property with a longer depreciation period--for example, office furniture, which has a seven-year period, instead of non-customized computer software, which has a three-year period. …

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