Timing can make a huge difference when it comes to equipment purchases. Section 179 tax deductions can provide one potential savings opportunity, but you will want to act before the end of 2024 to reap the most benefit from it.
Section 179 might seem complex at first, but knowing its specifics can be rewarding. This article will outline what Section 179 is, who can qualify for deductions, and why future changes might make 2024 the best time to take advantage of it. You can also contact our equipment financing experts with questions or to ask about specific cases.
What is Section 179?
Section 179 of the IRS tax code provides more immediate incentives for businesses purchasing qualifying depreciable business equipment such as machinery, vehicles, office equipment, and software. Instead of following standard depreciation deductions over several years, the full purchase price of these items could be deducted for the current tax year.
The IRS caps Section 179 tax deductions at a maximum amount each year. For 2024, this maximum total is $1,220,000. However, bonus depreciation can be applied to a percentage of qualifying purchases beyond a total phase-out threshold of $3,050,000. Total qualifying purchases must be $4,270,000 or lower for all these benefits to apply.
This is where the timing comes in.
How has Section 179 changed in 2024?
While the maximum deduction and phase-out threshold allowed through Section 179 have gradually increased from year to year, the bonus depreciation has decreased. Whereas bonus depreciation applied to 100% of qualifying costs in 2021, it applies to only 60% of qualifying costs in 2024.
Bonus depreciation is planned to decrease each consecutive year, with 40% in 2025, 20% in 2026, and ultimate elimination in 2027.
Let’s look at an example that might make this easier to understand. Say you purchased $2,000,000 in qualifying equipment in 2024. You could take $1,220,000 of that purchase as a full deduction. Of the remaining $780,000, 60% could be deducted for an extra $468,000 in deductions. The same bonus depreciation deduction in 2025 would only be 40% or $312,000 in deductions.
So, if your business’s equipment purchasing plans could take advantage of bonus depreciation, this year may be the most beneficial time to move forward with buying. If you do wait until 2025, however, you will still have some bonus depreciation to take advantage of, as well as a potential slight increase in the maximum deduction.
What equipment qualifies for Section 179 tax deductions?
As with many regulations, there are certain restrictions as to what qualifies for Section 179 deductions and bonus depreciation. In addition to the maximum deduction and phase-out threshold amounts described above, equipment must also:
- Have more than 50% of its total use be for business purposes only (the percentage of business use will be applied to the cost of the equipment to determine the amount eligible for deduction)
- Be acquired and begin use during the tax year in which deductions are claimed
- Depreciate over time
Outside of these factors, the scope of qualifying equipment is quite wide. Equipment that can be eligible for Section 179 tax deductions includes, but it is not limited to:
- Computers, office furniture, and office equipment
- Business vehicles that weigh more than 6,000 pounds
- Large machinery such as presses and manufacturers
- Useful enhancements to non-residential buildings such as security systems, HVAC, fire suppression systems, and roofing
Your method of equipment financing might also affect eligibility. Many financing agreements and loans fall under eligibility, while many leasing options do not. It is best to speak with a financing expert or your tax advisor to determine what type of financing option might best suit your organization’s needs.
Do you want to make Section 179 part of your growth plans?
Section 179 tax deductions can serve as a helpful catalyst for longer-term business growth, putting pieces in place now that can pave the way for expansion later.
Our financing experts at Team Financial Group can help you put your plans into motion with financing solutions that meet your needs and help you qualify for additional benefits. Starting a conversation with us is as easy as calling us or filling out our simple online form.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.