IRS Deudctions

Section 179 Deduction

The Section 179 deduction is very useful and interesting. Also called the first year expense allowance, the section 179 deduction dollar limits have increased year after year allowing taxpayer to take larger tax deduction. Business owners often benefit greatly from Section 179 tax deductions. Find out how the Section 179 deduction works to help lower your tax bills below.

How Does Section 179 Deduction Work?

When a taxpayer buys a property that qualifies for Section 179 deduction, he or she can choose to either:

  • depreciate the property over time or
section 179 deduction
  • deduct a lump sum purchase price, up to the allowed Section 179 deduction limit.
Why is Section 179 Deduction Useful?

The difference between the amount a taxpayer can deduct using the depreciation methods and the amount allowed by the Section 179 deduction is huge. For example, the amount of first year depreciation deduction can be only $500 while the amount of allowable Section 179 deduction is $125,000 in 2007.

By taking the Section 179 deduction, the taxpayer can significantly lower his or her income tax for the year which is very useful for years that the taxpayer wants to pay less taxes.

Should I Depreciate or Take The Section 179 Deduction?

Since the difference between taking the Section 179 deduction and depreciating a property is substantial, the question that many taxpayers ask is whether they should take the large lumpsum tax deduction, under Section 179 tax code, now or take smaller deductions over time.

Whether you should depreciate a little at a time instead of taking the large Section 179 deduction or not depends on your situation. We will cover situations when it is more beneficial to take the depreciation tax deductions instead of the Section 179 deduction in another section.

Are All Properties Eligible for Section 179 Deduction?

Unfortunately, not all properties are eligible for Section 179 deduction. For example, if you bought a property for lease or if you bought it from an organization that you control, the property is not eligible for the Section 179 deduction. You can read more about Section 179 deduction in the IRS publication 946, How to Depreciate Property.