Question

1. The allowable limit of the 179 deduction will often fluctuate because of Congress action (eg, the limit increased to $1M due to the TCJA Act). Why would the allowed deduction change so frequently through the years?
2. Why would an individual decide to take this deduction and discuss some reasons why it would not be advantageous?

Answer 1

Because it is used to give benefit to the small business in terms of their capital investment. The one time flat deduction instead of a break down method where they charge annual depreciation gives some credit line. It encourages them to do more capital investment. The deduction changes frequently because it is trying to indirectly give more benefit and liquidity power to the business owners via a reduced tax burden. Also considering inflation and economic situation government only deffers their taxes when increasing limit in this section. So for example if a person would have gotten the deduction over 5 years with gradual depreciation he gets that deduction in year 1 itself. So its no major issue to government if they wish to increase the tax benefits to the people or businesses.

Individual would take this decision because he can get 100% deduction of capex at one go without waiting for uselife to get depleted. He would not take this because he would rather choose to have a bonus depreciation in place instead. It only leads him to more capital expenditure in order to take this benefit and eventually ends up doing some heavy capex investment.