Monday, June 26th, 2017

Increased Section 179 Expensing

Under IRS Code Section 179, a taxpayer may elect in 2006 to expense up to $108,000 of the cost of qualifying property placed in service for the taxable year. Qualifying property under Section 179 is generally personal property (new and used) acquired or purchased for use in a trade or business. The $108,000 amount is reduced by the amount by which the total cost of qualifying property placed in service during 2006 exceeds $430,000.

The amount eligible to be expensed for a taxable year also can’t exceed the taxable income for a taxable year that is derived from the active conduct of a trade or business. Any amount that is not allowed as a deduction because of the taxable income limitation may be carried forward to succeeding taxable years, subject to similar limitations.

Under the GO Zone Act, the $108,000 maximum amount that a taxpayer may elect to deduct under Section 179 in 2006 and 2007 is increased by the lesser of $100,000 or the cost of qualified Section 179 GO Zone property placed in service during the taxable year. This provision applies with respect to qualified Section 179 GO Zone property acquired on or after Aug. 28, 2005, and placed in service on or before Dec. 31, 2007.

The $430,000 phase-out ceiling for this benefit is also raised substantially under the GO Zone Act. The maximum amount that a taxpayer may elect to deduct under Section 179 is reduced by: the amount by which the cost of qualified Section 179 GO Zone property placed in service during the taxable year exceeds $430,000 (for 2006 and 2007), increased by the lesser of $600,000 or the cost of qualified Section 179 GO Zone property placed in service during the taxable year. Therefore, the total GO Zone capital expenditure ceiling is $1,030,000 for Katrina-related expenditures.

In effect, the maximum $108,000 deduction is increased to $205,000 for qualified GO Zone property placed in service from Aug. 28, 2005, to Dec. 31, 2005, and to $208,000 for property placed in service in tax years beginning in 2006. If total payments placed in service from Aug. 28, 2005, to Dec. 31, 2005, exceed $1,020,000 ($1,030,000 for 2006 property), this provision is not available. This provision has several other limitations including that it does not apply to real property and other Section 179 rules apply.