Generally, the cost of property placed in service in a trade or business can’t be deducted in the year it’s placed in service if the property will be useful beyond the year. Instead, the cost is capitalized and depreciation deductions are allowed for most property (other than land), but are spread out over a period of years. Capitalization delays the tax benefits of business expenditures.
The expense election is made available, on a tax year by tax year basis, under Section 179 of the Internal Revenue Code (the Code), and is often referred to as the Section 179 election or the Code Section 179 election.
Subject to a dollar limit, the election allows you to deduct, in the tax year for which the election is made, the cost of qualifying property (described below) placed in service during the tax year. The immediate deductions allowed are in lieu of capitalization and later depreciation deductions. The deduction limit is $500,000 for a tax year beginning in 2011 ($125,000, as adjusted for post-2006 inflation, for a tax year beginning in 2012). As will be discussed in future blog posts, the deduction is phased out (i.e., gradually reduced) if:
- More than $2,000,000 of qualifying property is placed in service during a tax year beginning in 2011 or
- More than $500,000 (as adjusted for post-2006 inflation) of qualifying property is placed in service during a tax year beginning in 2012.
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