Understanding the basics of Section 179
Section 179 is a tax deduction, which allows businesses to subtract the cost of certain types of assets from their balance sheet. Qualified purchased assets or leased assets can be written off as an expense during the purchase year. In order to meet the tax deduction, the qualified assets must be in use by December 31 of the tax year. Businesses can elect the tax deduction when filing their annual tax return.
The visual represents out of pocket costs for newly acquired leased or purchased equipment eligible for Section 179. While both leased and purchased equipment may qualify for the deduction, the difference is out of pocket expense. With leased equipment, you can pay less upfront, pay monthly lease payments, and still receive 100% deduction under Section 179.
Write it off now and pay it off over time
The Tax Cuts and Jobs Act (TCJA) of 2017 extended bonus depreciation, and the 2023 bonus depreciation limitation is 80%. The TCJA also increased the Internal Revenue Service Section 179 limit to $1,160,000 (adjusted for inflation) for 2023 on qualified equipment.* Businesses with over $2,890,000 of purchases in 2023 will have the Section 179 deduction phase out dollar-for-dollar up to $4,050,000.
This means you may be able to write off most or all the cost of newly acquired capital equipment in 2023. New capital equipment which is purchased and/or financed and placed into service between January 1 and December 31, 2023 may qualify for these deductions. This may include equipment that you acquire via capital lease ($1 purchase option).
Additional information to consider:
- If IRS Section 179 allowance of up to $1,160,000 is used, capital equipment purchases over that allowance may be eligible for 80% Bonus Depreciation of the remaining basis after taking Section 179.
- OR, 80% Bonus Depreciation may be used instead of Section 179 for capital investment.*
- The remaining basis of 20% is then depreciated over the remaining useful life of the asset using MACRS.
Which assets qualify for Section 179?
Most leased equipment and software will qualify for Section 179. Qualifying assets can be used equipment if it is new-to-you. Explore qualifying assets for Section 179:
Qualifying Assets
- Automobiles
- Computers and software
- Office equipment
- Machinery
- Tractors
- Trucks
Ineligible Assets
- Billboards
- Buildings
- Fences
- Land or Landscaping
- Non-mobile trailers
Discover the benefits of Section 179 and bonus depreciation
The Tax Cuts and Jobs Act of 2017 increases Section 179 expensing and bonus depreciation for eligible equipment. Both new and used equipment may qualify for both Section 179 and Bonus Depreciation if the equipment is new-to-you.
| Potential Tax Savings | 2023 Tax Year |
| Purchase price | $1,500,000 |
| Total tax deduction using Section 179 | $1,160,000 |
| Additional tax deduction for 80% Bonus Depreciation (Basis after 179 x 80%) | $272,000 |
| 20% MACRS depreciation on remaining basis (Basis after 179 & bonus / 5 years) | $13,600 |
| Basis after depreciation | $54,400 |
| Potential tax savings in the 21% tax bracket | $303,576 |
| Net equipment cost after tax savings | $1,196,424 |
Take advantage of Section 179 for qualifying assets
You may be eligible to pay less in taxes if assets are used within the first year. Contact your accountant or financial advisor today to find out more about the tax laws and specific benefits you may receive when acquiring equipment that is new-to-you.
*Disclaimer: DLL does not provide legal, tax or accounting advice. The customer must obtain and rely on such advice from its own accountants, auditors, attorneys, or other professional advisors. These materials are for informational purposes only. Nothing herein constitutes tax advice and customers should consult with their tax advisors prior to electing specific rates or options.
