Specialty Tax Spotlight – Section 179

Specialty Tax Spotlight

In this episode of Weaver: Beyond the Numbers, Specialty Tax Spotlight, Sean Muller and Ralph Ferrales break down an essential expensing provision in the tax code — Section 179. For the longest time, organizations have relied heavily on bonus depreciation, neglecting this small business wonderchild. However, with the looming phaseout of bonus depreciation, the relevance of Section 179 has resurfaced.

Key Points:

• Understanding Section 179: Section 179 permits taxpayers to deduct the full purchase price of specific types of property from their income. Notably, it’s similar to bonus depreciation extending benefits to tangible personal property, software and certain real property.
• Boundaries of Section 179: Earning its title as the “small business taxpayer expense,” Section 179 carries its limitations. The prescribed 2024 limit stands firm at $1.22 million for the total amount of deductions permitted for eligible property.
• The Potential of Section 179: The distinct advantage of Section 179 surfaces in its association with real property assets. Unlike bonus depreciation, Section 179 envelopes certain real property, such as roofing, HVAC and fire suppression systems having recovery periods above 20 years.

During the conversation, Ralph explains the nuances of Section 179 and how it enables taxpayers to fully deduct the purchase price of qualifying tangible personal properties and software, though it excludes certain categories like trusts and estates. The 2024 limit for these deductions is capped at $1.22 million, with a gradual reduction once assets exceed $3.05 million. A key advantage of Section 179 is its coverage of real property assets. This provision presents a silver lining for small taxpayers, enabling them to capitalize on expense privileges that would otherwise be unattainable via bonus depreciation.

“Section 179 is a provision that allows taxpayers to expense certain properties,” Ralph said. “It’s an expensing provision in the code and in the regs that allow taxpayers to take immediate deductions, right? Expense something in the current year instead of having to capitalize and depreciate it.”

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