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.
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.