Shopping, anyone? If your business is in need of office equipment, computer software or perhaps an HVAC system, the purchase you make today could provide you with a tax break tomorrow — or, more specifically, when you’re ready to file your 2016 taxes. The Section 179 expensing deduction remains a solid potential tax-saving value for today’s companies.
Expensing your buys
Sec. 179 of the Internal Revenue Code allows businesses to elect to immediately deduct — or “expense” — the cost of certain tangible personal property acquired and placed in service during the tax year. This is instead of claiming the costs more slowly through depreciation deductions. The election can only offset net income, however. It can’t reduce it below $0 to create a net operating loss.
The election is also subject to annual dollar limits. For 2016, businesses can expense up to $500,000 in qualified new or used assets, subject to a dollar-for-dollar phaseout once the cost of all qualifying property placed in service during the tax year exceeds $2 million.
Improving real property, too
The expensing limit and phaseout amounts would have been far lower had Congress not passed the Protecting Americans from Tax Hikes Act in late 2015. The new law made the limits permanent, indexing them for inflation beginning this year. It also makes permanent the ability to apply Sec. 179 expensing to qualified real property, such as eligible leasehold-improvement, restaurant and retail-improvement property.
Finally, the new law permanently includes off-the-shelf computer software on the list of qualified property. And, beginning in 2016, it adds air conditioning and heating units to the list.
Considering all options
You can use Sec. 179 expensing for both new and used property. A related tax break, bonus depreciation, applies only to new property. Be sure to consider all options when purchasing assets.