Connect With Us
Your section 179 deduction is generally the cost of the qualifying property. However, the total amount you can elect to deduct under section 179 is subject to a dollar limit, a limit based upon total eligible property acquired during the year, and a business income limit.
Dollar Limit. For 2011, you can expense up to $500,000 of the cost of eligible property (qualified leasehold, restaurant and retail improvements are limited to $250,000). If you acquire and place in service more than one item of qualifying property during the year, you can allocate your section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. However, you do not have to claim the full $500,000.
Total cost of all property. The dollar limit must be reduced if the total cost of all eligible property exceeds a certain amount. For most small businesses, this limitation is not likely to have an impact on the available dollar amount because it is set at $2 million for 2011. If the cost of all eligible property exceeds $2 million, then the $500,000 dollar limit is reduced dollar-for-dollar for each dollar over $2 million. Thus, in 2011, the expensing election is not available for any property if the total cost of all eligible property acquired during the year exceeds $2,500,000.
Equipment over the limit. If you purchased equipment that exceeds the $500,000 limit, or if you claim more than the maximum dollar amount, you can depreciate the excess amount under the usual rules.
Special rules for cars. For many small business owners, the only time they would even approach the annual expensing limit would be the year they purchase a new car. But as fate (and Congress) would have it, there is a special rule that prevents you from deducting the full amount. Generally, for cars, the amount of depreciation, including the Section 179 deduction, that may be expensed the first year placed in service is limited to $3,060 ($3,160 for trucks and vans) in 2011 (this amount is adjusted periodically because of inflation). For 2011, thanks to the economic stimulus legislation designed to encourage purchases, a bonus depreciation allowance of $8,000 can be used on business vehicles; this means the total deduction for cars will be $11,060 in 2011 ($11,160 for trucks and vans).
Special rules for SUVs. A well-publicized tax break once allowed taxpayers who purchased a truck or van with a gross vehicle weight rating (GVWR) in excess of 6,000 pounds to deduct more than $100,000 of the vehicle's cost in the year of purchase assuming that the vehicle is used 100 percent for business purposes. A sport utility vehicle (SUV) built on a truck chassis would qualify for this purpose.
However, the American Jobs Creation Act of 2004 limits the cost of an SUV that may be expensed in the first year to $25,000. The reduced limit applies to vehicles placed in service after October 22, 2004.
Although this infamous tax loophole is smaller, the new law does not eliminate the exemption from the luxury car depreciation limitations for SUVs that have a GVWR in excess of 6,000 pounds. It simply prevents a taxpayer from expensing the maximum amount otherwise allowable under the expensing election.
Owners of heavy SUVs will still be able to claim a significantly higher first-year depreciation deduction than owners of lighter vehicles. A taxpayer may also still purchase a pick-up truck with a GVWR in excess of 6,000 pounds and expense the entire cost, assuming 100 percent business use.
In addition, the term "sport utility vehicle" and, thus, the new $25,000 limit, does not apply to any vehicle that: