Tax Alert

June 2010

Section 179 Expense Limitation Extended For 2010
Don′t Miss Out!

The new 2010 Health Care and HIRE Tax Act has extended the 2008 and 2009 Section 179 Dollar and Investment Limitations one additional year. The 2010 Section 179 dollar and investment limitations are now as follows:

• Dollar Limitation: $250,000
• Investment Limitation: $800,000
• (These amounts will not be adjusted for inflation)

Dollar Limitation Defined:

This is the maximum amount of Section 179 property that can be expensed during the 2010 tax year.

Investment Limitation Defined:

The section 179 dollar limitation is reduced dollar for dollar by the cost of qualified property placed in service over the investment limitation.

Example:

• Qualified Property Placed in Service during 2010: $1,000,000
• Amount of property that exceeds the investment limitation: ($1,000,000 - $800,000) $200,000
• Maximum Allowable Section 179 Expense = $50,000 ($250,000 - $200,000)

How Does This Affect You?

With the IRS extending the higher dollar and investment limitation, you have until the end of 2010 to purchase more qualifying section 179 assets so that you can take advantage of the higher limitations.

• Higher Limitations = Ability to purchase more Section 179 qualified property
• Increased Section 179 property = Increased Section 179 Expense
• Increased Section 179 Expense = LARGER Tax Savings on your 2010 Tax Return!

Section 179 Refresher:

When you purchase personal property for your business, such as computers, machinery & equipment, furniture & fixtures, etc., you cannot expense the entire cost of the property on your tax return. The Internal Revenue Service requires that you capitalize the cost of the property and take a depreciation expense over a certain number of years. In order to receive an immediate tax benefit for the assets you purchase, you can elect to take a section 179 expense – election to expense certain depreciable business assets.

You have the option to elect to treat the cost of qualifying property, called section 179 property, as an expense rather than a capital expenditure.

Example:

• Taxpayer A purchased a computer for $2,500. If there is no election made to take a section 179 expense, the computer is capitalized and then depreciated over the next 5 taxable years.
• If taxpayer A makes the Section 179 expense election, the entire $2,500 paid for the computer can be taken in the year purchased. In this case, an expense of $2,500 will be available to taxpayer A for the 2010 tax year.

Qualifying Property Defined:

To qualify as section 179 property, the property must be:

1. Tangible Section 1245 property
• Personal property, such as computers, machinery & equipment, furniture & fixtures, etc.
2. Acquired for use in the active conduct of a trade or business.

What's Next?

At the present, the 2011 amounts are set to be significantly lower and less beneficial to taxpayers. The Code Sec. 179 Dollar Limitation is set to be $25,000, while the investment limitation is set to be $200,000. If you expect to have taxable income during the 2010 tax year, it will be more beneficial to purchase section 179 property during 2010 rather than waiting until the 2011 tax year. You will be able to take advantage of the higher limitations, thus helping you achieve a larger tax savings.

 

For questions relating to this article or for assistance with developing an effective tax plan, please call or email Lee M. Weinstein, MBT, at (310)432-7465 or lweinstein@sjaccounting.com or your principal contact at Stonefield Josephson.

 

The information in this document is not intended or written to be used as, and cannot be used as or considered to be a "covered opinion" or other written tax advice, and should not be relied on for the purpose of (1) avoiding tax-related penalties under the Internal Revenue Code, or (2) promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein, for IRS audit, tax dispute, or other purpose.

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