What exactly is Section 179?

If you own or operate a small business that purchases, finances or leases less than $2,500,000 in new or used equipment during the tax year, you most likely qualify for the Section 179 deduction.

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This tax rule is designed to encourage businesses to invest in themselves by providing a significant tax benefit when purchasing new or used equipment, including machinery and attachments.

Ideal for businesses that utilize skid steers, excavators, mini skid steers, tractors, and other heavy equipment, Section 179 allows you to deduct the full purchase price of qualifying equipment in the year you buy it, instead of writing off small amounts over several years through depreciation. This immediate deduction helps reduce your taxable income, freeing up cash flow to reinvest in your business.

For 2024, you can deduct up to $1,160,000 under Section 179, making it an excellent incentive for any business looking to upgrade its equipment or add essential attachments. Whether you're buying new attachments for your skid steer or purchasing an excavator, you can deduct the full cost from your gross income, reducing your overall tax burden.

When Should I Take the Section 179 Deduction?

You can take the Section 179 deduction when filing your annual tax return. Whether you file on time or receive an extension, this deduction will apply as long as the equipment is purchased and put into use by December 31st of the tax year.

It’s a relatively simple process: most small businesses have an accountant or tax consultant available who can help you file. You’ll need to complete Part 1 of IRS Form 4562 and attach it to your tax return. It’s worth noting that tax rules can change, so it’s always a good idea to act early and take advantage of this deduction before any adjustments are made.

What Types of Assets Are Eligible?

To qualify for the Section 179 deduction, the equipment must be purchased and placed into use between January 1 and December 31 of the tax year in which you're claiming the deduction. While used equipment is eligible, it must be new to you—meaning you can’t claim the deduction on equipment you purchased in a previous year.

Here’s a list of some eligible assets:

• Machinery and equipment for business use
• Attachments for skid steers, excavators, tractors, and other machinery
• Business vehicles (gross weight of 6,000 lbs or greater)
• Office equipment (printers, copiers, etc.)
• Office furniture
• Computers and software for business use

If you’re using equipment for both business and personal use, you can still take the deduction, but it will be based on the percentage of time it’s used for business.

Are There Any Other Considerations?

Section 179 is intended to help small and medium-sized businesses. As such, there are some monetary limits to keep in mind:

• For 2024, the maximum deduction is $1,160,000.
• The limit for total equipment purchases is $2,890,000. Once you exceed this amount, the deduction begins to phase out.
• If you hit the spending cap, you may still qualify for Bonus Depreciation. For 2024, bonus depreciation is 80% of the cost of new equipment, applied after the Section 179 deduction.

Bonus Depreciation only applies to new equipment, not used equipment, and can be used after the Section 179 deduction is fully utilized. This gives businesses an additional tax break for large purchases, helping to maximize tax savings in the year of purchase.

Is There a Deadline?

Yes, to take the Section 179 deduction, the equipment, machinery, attachments, or any other qualifying assets must be purchased or financed and put into use by December 31 of the tax year you're claiming. If you're planning to upgrade your equipment or add attachments, now is the time to take action and make the purchase before the deadline passes.

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How Does It Work? A Simple Example

Here’s an example to illustrate how Section 179 can benefit your business. Suppose you purchase a new attachment for your skid steer for $50,000. Without Section 179, you would typically depreciate that equipment over several years, writing off a portion each year. But with Section 179, you can deduct the full $50,000 in the year you buy it, immediately reducing your taxable income.

If your business is in the 24% tax bracket, that deduction could save you $12,000 in taxes, lowering the effective cost of the equipment to $38,000. That’s a significant tax break that can help you invest in other areas of your business.

Key Numbers to Remember:

• $1,160,000: Total Section 179 deduction limit for 2024.
• $2,890,000: The spending cap for total equipment purchases.
• 80% Bonus Depreciation: Applies to new equipment only, after the Section 179 deduction.

Any More Questions? Talk to a Tax Professional

While Section 179 offers an incredible opportunity for businesses to save on equipment purchases, it’s important to consult with a tax professional to ensure you're maximizing the benefit. Tax laws can change from year to year, and your accountant can help you navigate these rules and ensure you’re making the best decision for your business.

This overview is designed to help you understand the basics of Section 179, but for detailed guidance, be sure to get in touch with your tax advisor before making any qualifying purchases or claiming deductions on your tax return.