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Section 179 Overview

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Section 179 Overview (excerpts from Form 4562 instructions)

Election To Expense Certain Property Under Section 179

You can elect to expense part or all of the cost of section 179 property that you placed in service during the tax year and used predominantly (more than 50%) in your trade or business.

However, for taxpayers other than a corporation, this election does not apply to any section 179 property you purchased and leased to others unless:

  • You manufactured or produced the property or
  • The term of the lease is less than 50% of the property's class life and, for the first 12 months after the property is transferred to the lessee, the deductions related to the property allowed to you as trade or business expenses (except rents and reimbursed amounts) are more than 15% of the rental income from the property.

Election

You must make the election on Form 4562 filed with either:

  • The original return you file for the tax year the property was placed in service (whether or not you file your return on time) or
  • An amended return filed within the time prescribed by law for the applicable tax year. The election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. The amended return must also include any resulting adjustments to taxable income.

Revocation

The election (or any specification made in the election) can be revoked without IRS approval by filing an amended return. The amended return must be filed within the time prescribed by law for the applicable tax year. The amended return must include any resulting adjustments to taxable income or to the tax liability (for example, allowable depreciation in that tax year for the item of section 179 property which the revocation pertains). For more information and examples, see Regulations section 1.179-5.

Once made, the revocation is irrevocable.

If you elect to expense section 179 property, you must reduce the amount on which you figure your depreciation or amortization deduction (including any special depreciation allowance) by the section 179 expense deduction.

Limitations

Generally, the maximum section 179 deduction is $250,000. In most cases, this amount is reduced if the cost of all section 179 property placed in service during the year is more than $800,000.

The total cost you can deduct is limited to your taxable income from the active conduct of a trade or business during the year. You are considered to actively conduct a trade or business only if you meaningfully participate in its management or operations. A mere passive investor is not considered to actively conduct a trade or business.

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