Take Section 179 expense in certain cases when purchasing equipment

bulldozersSection 179 allows a business to immediately expense the full cost of equipment in the year of purchase, rather than capitalizing and depreciating the asset over its useful life. This means that more tax benefit will be recognized in the current year. As it seems most good things are limited, so is Section 179.  Effective January 1, 2014, total section 179 expense is limited to $25,000 per year.  Additionally, if you purchase more than $200,000 in fixed assets in any tax year, the $25,000 dollar limit is reduced by $1 for each dollar your fixed asset purchases exceed $200,000.  (For example, if you purchased $210,000 in fixed assets in 2014, your 2014 section 179 dollar limit would be $15,000.)  Note that the 2014 dollar and investment limits have dropped from 2013, when the dollar and investment limits were $500,000 and $2,000,000, respectively.

In addition to the dollar and investment limitations, there is another limitation.  Section 179 expensing cannot exceed a taxpayer’s taxable income in any tax year derived from its active trades or businesses.  This limit is first applied at the entity level and then at the individual level.

Individuals who are considered “passive” investors in a flow through entity should be aware that they may not be eligible to receive the tax benefits provided by section 179.  Determining whether an investor is considered “passive” or “active” for tax purposes can become very complicated.  If you aren’t sure whether you are considered to be an active or passive investor for tax purposes, please consult with a ShindelRock tax professional.

Therefore, if your Section 179 expense exceeds your taxable income from your active trades or businesses in any tax year, you may not receive the benefit of section 179.  In this case, it would be good idea to meet with your ShindelRock tax professional to see if you would get a greater tax benefit by not electing section 179 and instead, depreciating the business assets over their useful life.