Question

Mark Richmond bought equipment for his business and has heard that there are special rules which, instead of regular depreciation, will enable him to elect immediate expensing of the equipment he bought this year. Can he do this? > What Federal Tax handbook paragraph provides secondary authority? > What is the primary Code section that deals with this question? > Identify any additional facts you will need to address this question. Explain in a sentence why you need each additional fact. NOTE: The tax year is 2018 unless otherwise noted in the facts.

Answer 1

1. A tax payer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $ 1 million. It also increased the phase out threshold from $ 2 million to $ 2.5 million. For taxable years beginning after 2018, these amounts of $ 1 million and $ 2.5 million will be adjusted for inflation.

2. Section 179 of tax cuts jobs act allows for immediate expense deduction for purchase of depreciable business equipment instead of capitalizing and depreciating the asset. The deduction can be taken if the equipment is purchased or financed and the full amount of the purchase price is eligible for deduction. They are offered to small business owners to grow their businesses along with the purchase of new equipment.

3. This section is limited to items such as cars, office equipment, business machinery and computers. The equipment must qualify for the deduction as per the specifications within section 179 of the tax code and the purchase price must be within the dollar amount ranges allowable by the code. The property must be placed in service during the tax year for which the deduction is being claimed and must also qualify for bonus depreciation. The maximum amount of deduction will also be specified in the respective tax years according to Internal Revenue Service. Taking the immediate deduction can reduce the businesses' immediate break on their tax burden whereas capitalizing and depreciating the asset allows for smaller deductions over a longer period of time.