Small business tax savings from Sec. 179 expensing are big, with even more savings in the future

The Tax Cuts and Jobs Act (TCJA) allows for significant tax breaks regarding property purchases. This law was implemented December 2017 and greatly enhances Section 179 expensing for 2018. You might benefit from this tax break on your 2017 return if you made a qualifying purchase by December 31, 2017. If you outline your future property purchases accordingly, you can take advantage of the substantial increases to the tax break, planned for 2018 and beyond.

2017 Sec. 179 benefits

Under Sec.179 expensing, qualified taxpayers can deduct the full amount of qualifying new or used depreciable property and most software in Year 1. Various restrictions will apply. The topmost deduction under Sec. 179 is $510,000, for tax years that began in 2017. The maximum deduction is phased out dollar for dollar when the price tag of eligible property placed in service during the tax year surpasses the phaseout cap of $2.03 million.

Sec. 179 expensing also embodies qualified real property improvement expenditures. This real estate break pertains to:

  • Certain improvements to interiors of leased nonresidential buildings,
  • Certain restaurant buildings or improvements to such buildings, and
  • Certain improvements to the interiors of retail buildings.

Deductions taken for qualified real property expenses count against the overall maximum for Sec. 179 expensing.

Permanent enhancements

Under new, permanent improvements, the TCJA increases property limits and augments Sec. 179 expensing. The Sec. 179 deduction has a new maximum, raised to $1 million, for qualifying property placed in service in tax years starting in 2018; the phaseout threshold has been increased to $2.5 million. These amounts will be adjusted for inflation in succeeding years. To figure out eligibility for these higher limits, property is regarded as acquired on the date on which a written binding contract for the acquisition is signed.

An additional benefit of the new law is a broadened definition of eligible property to encompass specific depreciable tangible personal property used mainly to furnish accommodations. The new law also changes the definition of qualified real property eligible for Sec. 179 expensing, now also covering the following improvements to nonresidential real property: HVAC equipment, roofs, security systems, and fire protection and alarm systems.

Save now and save later

With the associated regulations, it can be difficult to figure out if you qualify for Sec. 179 on your 2017 return. Please contact us or call 818-334-8623 for help with this and outlining future purchasing. We want to assist you in reaping the maximum benefits of enhanced Sec. 179 expensing and other tax law changes under the TCJA.