Business Depreciation Under the TCJA, Part 2: Section 179 Expensing

LFL Veritas Blog: Depreciation Under TCJA Part 2

Business Depreciation Under the TCJA, Part 2: Section 179 Expensing

The rules and limitations for two methods used by businesses for expensing fixed assets – bonus depreciation and Section 179 expensing – changed significantly when the Tax Cuts and Jobs Act (TCJA) of 2017 was passed. In Part 1, we focused on how new bonus depreciation rules allow businesses to immediately expense more of their purchases. In this post, we’ll discuss how changes to Section 179 expensing provisions affect small to midsize businesses.

What Is Section 179 Expensing?

Section 179 of the IRS tax code covers the deduction of equipment, software and other eligible property. This provision was originally intended to be an incentive for small businesses to invest in themselves and enjoy much-needed tax relief. Section 179 used to be called the SUV Tax Loophole or the Hummer Deduction because it was commonly used to write off the purchase of work vehicles, such as SUVs and Hummers. New changes to Section 179 under the TCJA are very advantageous for small to midsize businesses, and not just when it comes to writing off vehicles.

Higher Limits and Maximum Deduction for Section 179 under the TCJA

The TCJA allows businesses to expense the cost of any eligible Section 179 property and deduct it in the year the property is placed in service. In other words, if you purchase property that’s eligible under Section 179, you can deduct the full purchase price from your gross income in the tax year it was purchased.

The maximum Section 179 deduction has been doubled from $500,000 to $1 million, and the phase-out threshold has been increased from $2 million to $2.5 million. However, the deduction is limited to the total trade or business income generated by the taxpayer.

Traditional work vehicles that almost always qualify for the full Section 179 deduction include:

  • Vehicles with seating for nine or more passengers, such as shuttle vans.
  • Cargo van-type vehicles with a fully enclosed driver compartment, no seating behind the driver’s seat, and no body section protruding more than 30 inches in front of the leading edge of the windshield.
  • Heavy construction equipment such as forklifts.
  • Tractor trailers.

Passenger vehicles, trucks and vans that can function as both work and personal vehicles must be used more than 50 percent of the time in a qualified business. These vehicles have a maximum deduction of $11,160 for cars and $11,560 for trucks and vans. That includes both the Section 179 expense deduction and bonus depreciation.

Exceptions that qualify for the full deduction include ambulances, hearses, vehicles used to transport people, non-personal use vehicles modified for business use, and “non-SUV” vehicles and trucks with a cargo area length of at least six feet, such as a pickup with a full-size cargo bed.

Expanded Definition of Section 179 Property

Taxpayers can now expense improvements made to qualifying nonresidential real property after the property is first placed in service. This applies apply to property placed in service in taxable years beginning after December 31, 2017. These properties include:

  • Any improvement to a building’s interior except improvements that involve the enlargement of the building, an elevator or escalator, or the internal structural framework of the building.
  • Roofs, HVAC, fire protection systems, alarm systems and security systems.

Of course, it would be virtually impossible to cover every nook and cranny of Section 179 changes in the context of a blog article. These are only the highlights. There are exceptions and special rules for each of these changes, and rules vary from state to state.

If you haven’t spoken with your accountant about changes to business depreciation under the TCJA, including both bonus depreciation and Section 179, it’s time to have that conversation. You have the opportunity to immediately expense much more than you have in the past, but you have to understand which property qualifies and which deductions make the most sense for your business.

To learn more, schedule a consultation with LFL Veritas. We’ll help you get up to speed on business depreciation changes and develop a strategy that allows you to take advantage of the new tax benefits.

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