Section 179 and bonus depreciation are both tax incentives available to U.S. businesses that allow them to write off the cost of qualifying property in the year the property is placed in service. However, there are some key differences between the two:
- Section 179: Section 179 of the U.S. tax code allows businesses to expense, or write off, the cost of qualifying property in the year the property is placed in service, rather than depreciating the cost over several years. The amount that can be expensed under Section 179 is subject to annual limits and dollar caps, which change from year to year.
- Bonus Depreciation: Bonus depreciation is a separate tax incentive that allows businesses to write off a specified percentage of the cost of qualifying property in the year the property is placed in service, in addition to any regular depreciation that may apply. Bonus depreciation is also subject to annual limits and dollar caps, which change from year to year.
In summary, Section 179 allows businesses to expense the cost of qualifying property, while bonus depreciation provides an additional write-off for the cost of qualifying property, in addition to any regular depreciation that may apply. Both incentives are designed to help businesses invest in new property by allowing them to write off a portion of the cost in the year the property is placed in service.
Examples
Here are examples for how each can be applied:
Example 1: Section 179
A small business purchases $50,000 worth of office equipment, such as computers, printers, and office furniture. Under Section 179, the business can choose to write off the entire $50,000 in the year the equipment is placed in service, rather than depreciating the cost over several years.
Example 2: Bonus Depreciation
A construction company purchases $200,000 worth of heavy equipment, such as bulldozers and excavation equipment. The company can choose to claim bonus depreciation on the purchase, which allows them to write off a specified percentage of the cost in the year the equipment is placed in service, in addition to any regular depreciation that may apply. For example, if the bonus depreciation rate is 20%, the company could write off $40,000 in the year the equipment is placed in service, in addition to any regular depreciation that may apply.
“Keep in mind these tax incentives are subject to annual limits and dollar caps, which change from year to year,” commented CPA, Eric Sheldon. “The specific requirements for claiming each can vary depending on the tax laws in your jurisdiction.”
Do you want to maximize your business deductions? Give us a call. We can help you determine which of these incentives applies to your specific situation.
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