Question

Comment on how a business owner can plan asset acquisitions to fully utilize the Section 179 deduction.

Answer 1

Section 179 Deduction provides immediate expense deduction to business owners on purchase of depreciable business equipment. This deduction is eligible only when the equipment is purchased or financed and the full amount of such purchase price qualifies for deduction. This acts as an incentive to business owners to expand their business with the purchase of new equipment if they plan the asset acquisition carefully. Thus, the following must be kept in mind-

• The property must be depreciable, tangible and personal and must be acquired for use in the active conduct of business
• The property must be purchased and put in service in the year in which deduction ought to be claimed.

The business property that qualify for deduction u/s 179 include:

1. Machinery & Equipment
2. Business vehicles with gross weight exceeding 6,000 labs
3. Listed property that can be used both for business and personal purposes
4. Business personal property that is not attached physically to a building
5. Costs of improvements to business buildings for alarms, fire suppressions, security systems, HVAC etc. This covers enlargement of a building, installation of elevators or escalators, and internal structure of the building.

It must also be kept in mind that property that is used to furnish lodging, property acquired by gift or inheritance, air conditioning and heating equipment, and property used outside the US do not qualify for deduction. Also, the property or assets must be used for business purposes to the extent of at least 50%.

The annual limit for deduction is $1 million.

Thus, to utilise the deduction fully, the above must be taken into consideration.