Understanding the Section 179 Deduction and Bonus Depreciation
Although Section 179 deduction and Bonus depreciation and the Section 179 deduction are both tax incentives for businesses, they are not the same.
Section 179 Deduction
Section 179 is a tax deduction for businesses that have placed new or used equipment into service within the year that they purchased or financed. . Generally, you cannot claim a Section 179 deduction based on the cost of property you lease.
It allows businesses to deduct up to $1,050,000 in tax year 2021. However, Section 179 deduction is phased out for businesses that have a large number of fixed assets during a tax year. It is phased out dollar for dollar if the qualified property exceeds $2,620,000 in 2021.
Common examples of qualified property (or assets) are:
Bonus Depreciation
The Tax Cuts and Jobs Act increases bonus depreciation from 50% to 100% for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. After 2023, bonus depreciation will still be available for both new and used qualified property, but the percentages will be reduced as follows:
Take Section 179 Deduction or Bonus Depreciation?
It depends. Here are some difference between Section 179 deduction and bonus deprecation.
First, not all properties or assets are eligible for both Section 179 deduction and bonus deprecation. If the property is qualified for both, bonus Depreciation is taken after the Section 179 deduction is taken.
Second, Section 179 deduction is limited by total amount written off ($1,050,000 in 2021) and total qualified properties ($2,620,000 in 2020). However, bonus deprecation is NOT limited to these.
Third, a business can’t take Section 179 deduction unless it has taxable income. However, the business can take bonus depreciation since it is NOT limited by taxable income.
Fourth, to take Section 179 deduction, the business must elected Section 179 election that is made on property by property basis. However, bonus depreciation is mandatory and must elect out for each class of property, not each individual property.
Section 179 Deduction
Section 179 is a tax deduction for businesses that have placed new or used equipment into service within the year that they purchased or financed. . Generally, you cannot claim a Section 179 deduction based on the cost of property you lease.
It allows businesses to deduct up to $1,050,000 in tax year 2021. However, Section 179 deduction is phased out for businesses that have a large number of fixed assets during a tax year. It is phased out dollar for dollar if the qualified property exceeds $2,620,000 in 2021.
Common examples of qualified property (or assets) are:
- Office equipment and furniture;
- Machines and manufacturing equipment;
- Off-the-shelf computer software;
- Certain vehicles;
- Tangible personal property used in business;
- Qualified improvement property such as roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems.
Bonus Depreciation
The Tax Cuts and Jobs Act increases bonus depreciation from 50% to 100% for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. After 2023, bonus depreciation will still be available for both new and used qualified property, but the percentages will be reduced as follows:
- 80% for property placed in service in 2023,
- 60% for property placed in service in 2024,
- 40% for property placed in service in 2025, and
- 20% for property placed in service in 2026.
- Property with a recovery period of 20 years or less such as machinery, equipment, computers, appliances and furniture;
- Qualified film, television, and live theatrical productions,
- Computer software
Take Section 179 Deduction or Bonus Depreciation?
It depends. Here are some difference between Section 179 deduction and bonus deprecation.
First, not all properties or assets are eligible for both Section 179 deduction and bonus deprecation. If the property is qualified for both, bonus Depreciation is taken after the Section 179 deduction is taken.
Second, Section 179 deduction is limited by total amount written off ($1,050,000 in 2021) and total qualified properties ($2,620,000 in 2020). However, bonus deprecation is NOT limited to these.
Third, a business can’t take Section 179 deduction unless it has taxable income. However, the business can take bonus depreciation since it is NOT limited by taxable income.
Fourth, to take Section 179 deduction, the business must elected Section 179 election that is made on property by property basis. However, bonus depreciation is mandatory and must elect out for each class of property, not each individual property.