First year depreciation dedution increased to 500K

Good news for business owners who bought equipment in 2010 or want to buy new equipment in 2011 and want to expense it fast. The Sec 179 limit was increased to 500K for 2010 and 2011 by the The Small Business Jobs Act of 2010. This can really help defer taxes for businesses that are otherwise profitable even though they spent on depreciable equipment.

Here is what the IRS said about the new law:

Small Businesses Can Benefit from Higher Expensing / Depreciation Limits

For tax years beginning in 2010 and 2011, small businesses can expense up to $500,000 of the first $2 million of certain business property placed in service during the year.

In general, businesses can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code.

Section 179 property is property that you acquire by purchase for use in the active conduct of your trade or business, including:

• Tangible personal property.

• Other tangible property (except buildings and their structural components) used as:

1. An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services;

2. A research facility used in connection with any of the activities in (1) above; or

3. A facility used in connection with any of the activities in (1) above for the bulk storage of fungible commodities.

• Single purpose agricultural (livestock) or horticultural structures.

• Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.

• Off-the-shelf computer software.
Section 179 property generally does not include land, investment property (section 212 property), property used mainly outside the United States, property used mainly to furnish lodging and air conditioning or heating units.

The Small Business Jobs Act (SBJA) of 2010 increases the section 179 limitations on expensing of depreciable business assets for tax years beginning in 2010 and 2011 and expands temporarily the definition of section 179 property, for tax years beginning in 2010 and 2011, to include certain qualified real property a taxpayer elects to treat as section 179 property. Qualified real property means qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2 million.

For tax years beginning in 2012, the maximum amount is $125,000; before enactment of the 2010 tax relief legislation, it was set at $25,000.

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