Code Section 179 provides an election whereby a taxpayer may expense up to $500,000 of tangible property (but not realty or land improvements) used in a business and placed in service during the year. However, the maximum deduction is reduced dollar for dollar once total personalty placed in service during the year exceeds $2,010,000.
The Sec. 179 deduction is further limited to the taxable income of the related business, before considering any MACRS or Sec. 179 deduction; any amount not deducted in the current year may be carried over to the next year and added to acquisitions that year and also to the dollar limit in that year.
Certain “listed properties” (e.g., autos, computers, printers, etc.) have restricted cost recovery methods; specifically, only straight-line recovery is allowed, and Sec. 179 deductions are not permitted on such properties. To avoid the characterization as a “listed property,” the asset must be used more than 50% of the time for business purposes.
If the business usage of “listed property” drops below 50% after the first year, the taxpayer must retroactively “recapture” as ordinary income any Sec. 179 deductions (to the extent the total cost recovery exceeds straight-line recovery without the Sec. 179 deduction).
If a qualifying asset is acquired in a Sec. 1031 like-kind exchange, only the “boot given” (i.e., cash difference paid) qualifies for the Sec. 179 deduction.
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