Section 179 Deduction 2021
Q3 is coming to a close. Businesses want to finish the year strong. It is important to utilize government incentives for your business. Many organizations have utilized the Section 179 tax deduction to purchase equipment before year-end. Has your business utilized this tax benefit yet?
What is Section 179?
Section 179 is an IRS tax code. It enables businesses to deduct the full purchase price of equipment purchased or financed during the tax year. It is an incentive created by the government to encourage business owners to purchase equipment and invest in themselves.
It is especially beneficial to small business owners. It is one of the few government tax incentives offered to small businesses. It was the original target audience of this legislation to ensure vital tax relief for small businesses. This deduction is a useful incentive for start-ups to utilize when they need to purchase an extensive amount of equipment to get their organization started.
How Does Section 179 Work?
By enabling the business to take the cost of the equipment as an immediate expense deduction, it ensures that the business receives an immediate break on its tax burden. In the past, when a business purchased qualifying equipment, it was written off a bit at a time through depreciation.
Section 179 enables businesses to purchase necessary equipment immediately. This allows businesses to grow by incentivizing them to purchase new equipment. The majority of small businesses can write off the entire cost of qualifying equipment on the 2021 tax return, which is up to $1,050,000.
What Type of Equipment Qualifies?
In general, most business equipment will qualify. The equipment qualifies if it is new or used as well as regardless if it is purchased outright, financed, or leased.
The following will typically qualify for the Section 179 Deduction:
- Office furniture
- Business equipment
- Business vehicles (weighing more than 6,000 pounds)
- Equipment purchased for business use
- Tangible personal property used in business
- Business cars with a gross vehicle weight in excess of 6,000 lbs
- Computer “Off the Shelf” Software (It must not be custom-designed and is available to the general public)
- Office Furniture
- Office Equipment
- Property attached to your building that is not a structural component of the building (i.e. large manufacturing tools)
- Certain improvements to existing non-residential buildings: fire suppression, alarms, & security systems, HVAC, roofing
What Type of Equipment Will Not Qualify?
The following equipment and property do not qualify for Section 179:
- Real Property (ie land, buildings, permanent structures)
- Property that is used to furnish lodging
- Property acquired by gift or inheritance, in addition to the property purchased from related parties
- Any property that is not considered to be personal property
Cars and Section 179
Many businesses utilize Section 179 for cars. In the past, Section 179 was coined as the “Hummer Tax Loophole.” This was due to businesses purchasing large SUVs and writing them off. However, the code has since been modified. Cars used in your business qualify. However, some passenger vehicles have a total deduction of $11,160. Since many cars are utilized for business and personal use, the rules regarding their qualification are often ever-changing and complicated.
Section 179 for 2021
- 2021 Deduction Limit= $1,050,000
- 2021 Spending Cap on equipment purchases= $2,620,000
- Bonus Depreciation=100% for 2021
Equipment Financing & Leasing
Be sure your business utilizes Section 179 deduction for 2021. If your business needs equipment, Providence Capital is here to offer you flexible equipment financing programs that fit your needs.
Fill out our equipment finance application for a quick decision equipment finance quote. Be sure to purchase equipment before year-end so you may potentially receive the 2021 Section 179 deduction.
If you would like to learn more about Section 179, go here.