Section 179 Tax Deduction Limits

An overview of Section 179 and bonus depreciation

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The Section 179 $500,000 annual deduction limit was made permanent effective January 1, 2015 under the Protecting Americans from Tax Hikes Act (PATH Act). The maximum annual investment limit for qualifying equipment purchases is $2 million, also made permanent by the PATH Act. The $500,000 annual deduction limit and $2 million investment limit will be indexed to inflation in $10,000 increments starting in 2016.

Under Section 179, you can deduct in a single year the cost of all tangible personal property (new or used) that you buy and use in your business at least 51% of the time up to the annual $500,000 limit. You can spend up to $2 million on qualifying equipment and still get the full deduction. If you spend more than the $2 million investment limit in any one year, the amount you can deduct under Section 179 is reduced dollar for dollar.

For many years, the Section 179 annual limit was decided by Congress after the start of the tax year, creating uncertainty for business owners who rely on these valuable deductions. When first enacted, the Section 179 limit was set at a relatively modest $10,000. Over the years, Congress raised the limit to help small businesses in economically hard times. Often the annual limit wasn’t set until late in the tax year or it was made retroactive which meant that businesses didn’t know the threshold limit when they were making decisions about how much business property to purchase that year. With the permanent annual and investment limits in place, business owners now know how much business property they can deduct each year. 

Here is a summary of the Section 179 annual limits and the maximum investment limits since they were first enacted.   

Year                       Annual Deduction Limit

1987– 2002          $10,000 – $24,000 (annual limit within this range)

2003 – 2006         $100,000 – $108,000 (annual limit within this range)

2007                     $125,000

2008 – 2009         $250,000

2010 – 2015         $500,000

Year                        Maximum Investment Limit

1987 – 2002         $200,000

2003 – 2006         $400,000 – $430,000 (annual limit within this range)

2007                      $500,000

2008 – 2009         $800,000

2010 – 2015         $2,000,000

In addition to Section 179, bonus deprecation can be used to currently deduct the cost of certain qualifying long-term business property. Unlike Section 179, there is no annual dollar limit on the amount you can deduct using bonus depreciation and you need not use the property at least 51% of the time for business. However, the property must be new and placed in service in the year the deduction is claimed. See 50% Bonus Depreciation Extended Through 2019 for more information on how bonus depreciation works. Bonus depreciation is in effect through 2019 but the bonus depreciation percentage will be gradually phased out as follows:

  • 50% for 2015 through 2017
  • 40% for 2018
  • 30% for 2019.

 

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