Those considering a year-end purchase to apply Section 179 may have questions about the program. Here are 10 frequently asked questions – and answers – about Section 179, plus one additional question to consider.
Even those who are familiar with Section 179 and have taken advantage of it in the past should read on, as two key pieces of the program changed in 2018.
1. What Is Section 179?
Section 179 is designed to encourage businesses to invest in themselves with equipment purchases by allowing them to take a depreciation deduction in the first year of purchase.
2. Is There a Spending Cap and Total I Can Deduct?
A total spending cap of $2.5 million has been applied to Section 179; once a company hits that amount, purchases become no longer eligible for Section 179 deductions. As of this year, the deduction limit is raised to $1 million, an increase from the $510,000 limit that was in place in 2017.
3. I’ve Heard “Bonus Depreciation” Mentioned with Section 179 – What Is It?
In the past, bonus depreciation went hand-in-hand with Section 179. There were two important changes to bonus depreciation in 2018, and both are still valuable options that can be used together.
4. Is Bonus Depreciation Expected to Change in the Future?
Bonus depreciation was changed to 100% this year and is expected to stay that way for five years. After that point, it is expected to phase down to 80%, 60%, 40%, and 20% in subsequent years.
5. What Qualifies for Section 179?
Tangible, movable items are eligible for Section 179 deduction, including equipment, and some business-use vehicles and software. Assets like additional farm land or a new equipment storage building do not qualify for Section 179 deduction.
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6. Is Section 179 Only Applicable to New Equipment Purchases?
Used machines and most leased equipment, in addition to new equipment purchases are eligible for Section 179 deduction.
7. What About Used Equipment in Terms of Bonus Depreciation?
One of the major changes to bonus depreciation in 2018 is that it can be applied to used equipment. Leased equipment is still eligible as well.
8. I’ve Heard the Term “Like-Kind Exchange” – Does That Apply to Section 179?
Like-Kind Exchange no longer applies to Section 179. Part of 2018 tax reform included a repeal of Like-Kind Exchange for equipment.
9. What’s the Date Range to Apply Section 179 in 2018?
To apply the deduction for tax year 2018, equipment must be financed or purchased between January 1, 2018 and December 31, 2018. Within the date range, a machine must be placed in service – essentially, delivered to a company or jobsite, ready to go to work – before midnight on December 31 to be eligible. Keep in mind any equipment purchases made this year, with the intent to apply Section 179, may already have used the deduction to its full potential.
10. Can I Hold This Year’s Section 179 Deduction Until Next Year?
Yes and there are reasons to consider doing so. For example, a business in a lower tax bracket now but looking to grow in 2019 might want to hold off on deducting all its equipment purchases by not taking Section 179 on the acquisition. Instead, the deduction could be spread out over time (likely five years) through depreciation deductions.
While some of these questions have changed from 2017, there’s one additional, important question that hasn’t changed, and will have a different answer for every company:
How do I know if Section 179 is right for my business?
Taking advantage of Section 179 might not be the right decision for every business. If equipment isn’t needed or a company can’t afford it, the deductions and money-saving opportunities likely aren’t enough to justify the investment. All business owners should consult their accountant or trusted tax advisor before deciding to utilize the incentive.
If it’s decided that a purchase is the right move, look to a trusted dealership for help. RDO Equipment Co.’s experts will help interested buyers find the right machine to fit needs, whether it’s new or used, or a lease option. And, looking beyond the close of 2018, RDO Equipment Co. also offers parts and service support to keep the investment solid, long after the sale.
About The Author
Mark Kreps is Vice President of Agriculture Sales with RDO Equipment Co. and based in Moorhead, MN.
To learn more about using this tax incentive or to see new, used, or leased equipment options, contact your local RDO Equipment Co. store.