With the end of our calendar year coming to an end, this month we are focusing on leveraging tax codes for the IRS 179 tax code.
Section 179’s deduction can assist your company by procuring assets that you need such as software, vehicles, and equipment while holding onto a larger portion of your tax dollars.
It’s important to understand the tax code, deduction rules, and updated limitations for 2020 to make the best decisions for equipment and software purchases.
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What Property Qualifies this Year?
In order for software, vehicles, and equipment to be applied as a Section 179 deduction, they must be used over 50% of the time for business purposes. Multiply the cost of assets purchased by the percentage of use for the business, and that will indicate the eligible financial amount for use with Section 179.
To review a complete list of qualifying deduction assets, visit the IRS website for a thorough overview. The IRS fact sheet provides updated information on deductions for Section 179, including the addition of particular improvements to buildings, bonus depreciation, limitations on vehicles used for business, mandates on farm equipment,
and the recovery period for “real property.”
What is the Deduction Limit for 2020?
The maximum deduction for 2020 under Section 179 is $1,000,000. In other words, companies in the United States can deduct the full price of both new and used qualified equipment purchases up to that amount; the “total equipment purchase” limit is up to $2,500,000. In 2020, businesses can claim 100% bonus depreciation on their new and used equipment.
Has the COVID-19 Pandemic Impacted Section 179?
According to the Section 179 official website, most of the equipment purchased for business use in order to comply with COVID-19 restrictions will qualify for the tax deduction.
Also, eligibility in 2020 for the Section 179 tax code is not impacted due to pandemic financial assistance, such as receiving loans. Rest assured that even if a business received a Paycheck Protection Program loan or any other COVID-19 monetary assistance, they will still be able to utilize the deduction.
What Cannot be Deducted Under Section 179?
- HVAC Units
- Property that is not tangible, including copyrights, patents, and trademarks
- Property located outside of the U.S.
- Structures that are permanent & are attached to land (e.g. fences, pools, paved parking lots)
Complimentary Tools to Calculate Section 179 Deductions
Section 179 is straightforward. Purchase, finance, or lease equipment, vehicles, or software that qualifies under the code’s stipulations, and enjoy a full tax deduction for 2020.
Here are three digital tools that can help you better understand Section 179, and estimate your company’s potential savings.