When am I eligible to take a Section 179 deduction?
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You are eligible to take a Section 179 deduction when you meet all of the following requirements:
1. The property is Section 179 property.
Section 179 property includes:- Tangible personal property (such as machinery, equipment, vehicles, and computers) acquired by purchase for use in the active conduct of a trade or business.- Certain qualified real property, including qualified improvement property and improvements to nonresidential real property such as roofs, HVAC, fire protection and alarm systems, and security systems, placed in service after the building was first placed in service.- Off-the-shelf computer software.- Single-purpose agricultural or horticultural structures.- Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.
2. The property is acquired by purchase.
- The property must be purchased for use in your active trade or business.- Property acquired by gift, inheritance, or from certain related parties does not qualify.
- The property must not be acquired from a related person as defined in the Internal Revenue Code (generally, your spouse, ancestors, or lineal descendants).
3. The property is placed in service during the tax year.
- You must place the property in service (i.e., it is ready and available for its specific use in your business) during the tax year for which you are claiming the deduction.
4. The property is used more than 50% for business.
- If the property is used for both business and nonbusiness purposes, it must be used more than 50% for business in the year it is placed in service. The deduction is limited to the business-use portion.
5. The deduction is subject to annual limits.
For tax year 2025:- The maximum Section 179 deduction is $2,500,000.
- The deduction begins to phase out dollar-for-dollar when the total cost of Section 179 property placed in service during the year exceeds $4,000,000. If the cost exceeds $6,500,000, no Section 179 deduction is allowed.
- The deduction cannot exceed your aggregate taxable income from the active conduct of any trade or business during the year. Any amount not deductible because of the income limitation can be carried forward to future years.
6. Certain property does not qualify.
- Land and land improvements (such as swimming pools, paved parking areas, wharves, docks, bridges, and fences not used in agriculture) do not qualify.
- Property used mainly outside the United States, property used by tax-exempt organizations (unless used in a taxable unrelated trade or business), and property used by governmental units or foreign persons/entities (except under a short-term lease) do not qualify.
7. Estates and trusts cannot claim the Section 179 deduction.
- Only individuals, partnerships, and corporations (other than estates and trusts) can elect the Section 179 deduction.
8. The election must be made on a timely filed tax return.
- The election is made by completing Part I of Form 4562 and attaching it to your timely filed tax return (including extensions) for the year the property is placed in service. The election can be revoked by filing an amended return within the time prescribed by law.
Summary of eligibility: You are eligible to take a Section 179 deduction for the tax year in which you purchase and place in service qualifying property (used more than 50% in your active trade or business), provided you are not an estate or trust, the property is not acquired from a related party, and you do not exceed the annual dollar and income limitations.
If you have a specific scenario or property in mind, please provide more details for a tailored analysis.
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