by Matt Doty on Monday, December 22, 2014
Section 179 deduction at $500k, Bonus Depreciation at 50%
The law extends 50% bonus depreciation and $500k Section 179 level for one year retroactive to January 1, 2014. This gives business owners until December 31, 2014 to make qualifying purchases for Bonus Depreciation. The Section 179 extention expires in the 2014 tax year.
The acquisition of equipment under a $1 purchase option lease or Equipment Finance Agreement (EFA) qualifies for the Section 179 tax break. Subject to limitations, Section 179 allows taxpayers to take an outright deduction equal to the full purchase price of qualifying equipment purchased during the tax year, and a $1 purchase option lease or EFA is considered a purchase under the Internal Revenue Code.
The limitations on the deduction for tax years that begin in 2014 include:
(a) an aggregate cap on the Section 179 deduction of $500,000
(b) a dollar-for-dollar reduction in that cap to the extent that the cost of qualifying equipment placed by the taxpayer during the tax year exceeds $2 million
(c) the deduction cannot reduce taxable income below $ -0-
(d) other applicable limitations
50% bonus depreciation extended
Benefit now expires December 31, 2014
Taxpayers who use up their entire $500,000 Section 179 tax deduction, or have exceeded the $2 million Section 179 phase out threshold, can turn to the 50% bonus depreciation deduction for a big tax advantage on qualifying equipment acquisitions before December 31, 2014.
50% bonus depreciation generally allows for an outright deduction of 50% of the otherwise depreciable cost of the equipment. In addition, taxpayers enjoy the regular depreciation deduction (e.g., 20% of the depreciable amount in the first year if 5 year MACRS depreciation applies) on any amount in excess of the Section 179 deduction and the bonus depreciation deduction.
NOTE: The Section 179 and Bonus Depreciation deductions are subject to applicable limitations under the Internal Revenue Code. These materials are not intended to be tax advice. You should speak with your own tax or legal advisor(s) to determine how these rules would apply in your circumstances.