Watch out for reduced Section 179 Depreciation in 2013
Internal Revenue Code (IRC) Section 179 has provided businesses with the ability to substantially accelerate depreciation on qualified purchases for the last decade. The limitation on the available deduction grew to $500,000 during 2010 and 2011 as Congress intended for the increased limits to assist businesses in light of the recession. For 2012, the available deduction has been decreased to $139,000. Without intervention by Congress, the deduction will decrease further for 2013 to $25,000.
IRC Section 179 allows businesses to deduct or expense the purchase price of equipment and machinery, as well as certain vehicles and software in the year of purchase, as opposed to depreciating the equipment over the life of the asset. There are certain limitations that apply to the Section 179 deduction including a cap on total equipment purchases $560,000 for 2012, to be reduced to $200,000 for 2013. Additionally, the Section 179 deduction may not exceed any taxable income for the year.
In addition to Section 179, bonus depreciation is also available for certain new fixed asset purchases. For 2012, the bonus depreciation available for purchases decreased from 100% in 2011 to 50% in 2012. The bonus depreciation deduction is also scheduled to expire in 2013 without intervention by Congress.
Because the accelerated depreciation deduction available to businesses is scheduled to be reduced for 2013, companies should assess whether equipment purchases planned for the upcoming year may be accelerated in order to take advantage of the depreciation deduction. Be aware though, that if you want the deduction to be taken for 2012, the equipment has to be in service by December 31, 2012. Please contact us if you any questions regarding purchasing decisions.
Update: On January 2, 2013, the ATRA tax laws were enacted which has increased the 2012 and 2013 Sec 179 deduction limitation to $500,000.