Small Business Wednesday – More On Sec. 179 and Bonus Depreciation

Last week, in this article, I talked in general about Section 179 and bonus depreciation. This week, I want to talk about how to get the most out of each deduction.

As I discussed last week, Section 179 deductions can be taken on both new and used assets that you purchase. Bonus depreciation can only be taken on brand-new assets that you purchase. In general, you take Section 179 first on everything that you can, then take bonus depreciation on whatever is left over. Anything left after you’ve exhausted all of your allowable Section 179 and bonus depreciation allowances gets depreciated under normal depreciation provisions.

Paul Neiffer at the Farm CPA Today blog had a great post about this last December, and he summarizes it quite nicely. Here is Paul’s advice:

  1. First, take Section 179 deduction on all of your used equipment.
  2. Second, take full Section 179 deduction on all assets with the longest life.  For example, if you have $100,000 of ten year property and $600,000 of 7 year property, take Section 179 on $100,000 of 10 year and $400,000 of 7 year property.
  3. Third, take your bonus depreciation on all of your NEW assets that qualify.
  4. Fourth, take normal depreciation on the remaining value.
You can click here to find Paul’s full article.
One other item to consider; the Section 179 deduction is limited to the lesser of $500,000 or your taxable income for the year. There is no such restriction on bonus depreciation (bonus depreciation can create a loss).
For Further Reading
Joe Kristan at the Tax Update Blog goes into more detail about year-end planning for Section 179 and bonus depreciation. You can find Joe’s article here.