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Qualifying Property

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Only certain types of property will qualify for a Section 179 tax deduction. The property must also meet specific criteria, such as being acquired by purchase, for use in the business, and actually put into use in the preceding year. 

 

To qualify for a Section 179 deduction, the property purchased must be one of the following types of depreciable property:
  • Tangible personal property (or any property that is not real property), such as:
    • Machinery, equipment, property contained in or attached to a building (refrigerators, office equipment, or signs), livestock, cattle, hogs, sheep, goats, horses, and furbearing animals. 
  • Other tangible property used as an integral part of manufacturing, production, or extraction (but, not the buildings or their structural components),
    • Or a facility used in connection with any of these activities for the bulk storage of fungible commodities (i.e., grain bins).
  • Single purpose agricultural (livestock) or horticultural structures. Which are buildings or enclosures designed, constructed, and used to:
    • House, raise, or feed a particular type of livestock AND will house the equipment needed to do so, 
    • Breed chickens or hogs, produce milk from cattle, or house feeder cattle, pigs, or broiler chickens AND will house the equipment needed to do so, or
    • A greenhouse for the commercial production of plants or mushrooms.
  • 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.
  • Business vehicles in excess of 6,000 lbs. 
  • Agricultural fences and field drainage tile. 

To qualify for a Section 179 deduction the property must meet the following criteria:
  • Acquired by purchase (gifts and inherited property do not qualify for the deduction), 
  • Put into use in the preceding tax year, 
  • Purchased for use in your trade or business,
    • Partial business use is permitted, but the deduction will reduced to the percentage of time you use the equipment for a business purpose.
    • The deduction is only available for partial business use if you use the property more than 50% for business in the year you place it in service.
  • Not purchased from a related person, which is specifically defined as your spouse, ancestor, or lineal descendant. Parents are considered related, but siblings are not.

Used equipment qualifies for a Section 179 deduction, but does not qualify for the bonus depreciation deduction.  

 
The following property DOES NOT qualify for a Section 179 deduction: 
  • Land and improvements (such as, nonagricultural fences, swimming pools, paved parking areas, docks and bridges),
  • Property acquired for the production of income (investment property, rental property, and property that produces royalties),
  • Air conditioning and heating equipment,
  • Property used outside of the United States, 
  • Property that is used to furnish lodging, 
  • Property leased to others,
  • Property used predominantly for lodging or in connection with the furnishing of lodging,
  • Property used by a tax-exempt organization (except farmers’ cooperatives), unless the property is used mainly in a taxable unrelated trade or business, and 
  • Property used by governmental units. 
Any business that purchases less than $2 million of new or used equipment during a tax year will likely qualify for a Section 179 deduction. If your purchases exceed the $2 million threshold, the Section 179 deduction will decrease proportional to the excess amount.  However, you will still be able to elect the 50% Bonus Deprecation deduction for certain purchases.
 
Note that if your business is not profitable, or has no taxable income to use the deduction, you can elect to use the 50% Bonus Depreciation and it will carry-forward to a year when the business is profitable.