2021 Section 179 Deduction Calculator & Guide For Equipment
Section 179 Deduction is one of the most popular tax programs, and it is specifically designed to benefit small and medium-sized businesses. This provision allows companies to reduce their current year's tax liability by immediately deducting the full cost of qualifying business assets, such as equipment, vehicles, and machinery, rather than spreading the deduction over several years through depreciation.
The Section 179 Deduction is a powerful tool aimed at encouraging investment in productive assets. However, it’s important to note that the benefits are limited for larger purchases. When the total capital investment exceeds $2.62 million, the deduction begins to phase out, making it less beneficial for large corporations.
Normally, long-term assets like heavy machinery are depreciated over many years, meaning only a portion of the cost is deducted annually. Section 179 changes this by allowing businesses to deduct up to $1.05 million in the year of purchase, providing a significant immediate tax break.
The fourth quarter often sees a surge in equipment sales because businesses take advantage of the Section 179 Deduction to reduce their tax burden. This incentive encourages both new and used equipment purchases, helping companies optimize their financial planning.
For many business owners, receiving a tax benefit sooner rather than later is more valuable. The money saved can be reinvested into the business, supporting growth, employee compensation, research, or expansion.
Section 179 Deduction not only helps individual businesses but also stimulates economic growth by promoting investment in productive assets. By enabling businesses to invest in modern tools and technology, the economy becomes more efficient and competitive.
Lawmakers frequently use Section 179 as a way to stimulate the economy and support small and medium-sized enterprises. In times of economic downturn, increasing the deduction limit has been a common strategy to boost spending and investment.
Another related tax incentive is bonus depreciation, which can be combined with Section 179. Tax professionals usually recommend applying Section 179 first, then using bonus depreciation on the remaining balance.
Our team at Equipment Radar has developed a free spreadsheet to help you calculate your Section 179 Deduction. You can download and use it to estimate how much you could save on taxes by investing in qualifying equipment.
Here are the links to our calculators:
We recommend downloading the Microsoft Excel version so you can edit the spreadsheet. The "View Only" versions are not editable. You can customize the assumptions based on your business needs. The cells that you should modify are highlighted in light green.
Congress created Section 179 to support small and medium-sized businesses. To qualify, a business must not spend more than $3.67 million on qualifying equipment in a single year.
Each year, businesses can deduct up to $1.05 million under Section 179. Once the total qualifying purchases exceed $2.62 million, the deduction starts to phase out dollar-for-dollar until it reaches zero at $3.67 million.
The chart below illustrates how the deduction decreases as purchases increase.
Source: Equipment Radar and IRS
Takeaway: The Section 179 Deduction benefit phases out completely once annual purchases exceed $3.67 million.
It's crucial to remember that the deduction resets each tax year. If your business spends between $2.62 million and $3.67 million in one year, you might be able to split the purchases across two tax years to maximize the deduction. Always consult a tax professional for personalized advice.
The IRS provides detailed guidelines for Section 179 Deduction (you can find the actual form here). It’s essential to review these resources annually since tax laws can change. Generally, the deduction amount tends to increase over time to reflect inflation and economic conditions.
Most types of tangible property, except land, can be depreciated under Section 179. This includes buildings, machinery, vehicles, furniture, and equipment. Intangible property like patents, copyrights, and software may also qualify.
To be eligible, the property must meet the following criteria:
Agricultural and construction equipment such as tractors, combines, dozers, excavators, and loaders typically qualifies. These items are considered productive assets used to generate income.
Businesses that rent equipment are not eligible for Section 179 Deduction. However, equipment rental companies can qualify if they own the equipment.
An often-overlooked point is that Section 179 is not limited to physical assets. It can also apply to intangible property like computer software.
Land cannot be depreciated because it doesn’t wear out or become obsolete. However, costs associated with preparing land for business use—such as landscaping, clearing, and grading—can be depreciated if they are closely tied to other depreciable assets.
The IRS has specific rules for SUVs and certain other vehicles. Initially, Section 179 did not limit vehicle deductions, allowing large SUVs to qualify. Over time, the IRS added restrictions. For example, the deduction for heavy SUVs placed in service in 2020 is capped at $25,900.
If you buy a used Caterpillar D8 crawler dozer for $150,000 and use it 100% for business, and your total purchases for the year are under $1.05 million, you can deduct the full $150,000.
If you buy a used John Deere 120R compact tractor for $10,000 and use it 80% for business, you can deduct $8,000 (80% of the cost).
Only the owner of the equipment can claim the Section 179 Deduction. So, if you're renting a power generator, you can't use this deduction. However, you may be able to deduct the full rental expense as a business expense.
Whether new or used, equipment qualifies for Section 179 if its cost is under the $1.05 million limit. So, buying a new John Deere 870G excavator would allow you to deduct the full cost.
Transportation costs for moving equipment, like a crane, can often be included in the total purchase price. So, if you buy a used Grove crane from 2,000 miles away, you can include shipping and freight costs when calculating your Section 179 deduction.
This blog post is intended to provide general information about Section 179 Deduction and how it applies to equipment purchases. It is not a substitute for professional tax advice. Always consult a licensed tax accountant for guidance tailored to your specific situation.
Tax laws and regulations evolve over time, and interpretations can change. Tax professionals stay updated on these changes and can help you navigate the complex landscape of tax deductions and credits.
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What Is Section 179 Deduction?
Section 179 Deduction Calculator
Calculator Directions
What Are Deduction Limitations?
Historical IRS Section 179 Deduction Levels
Year
Section 179
Deduction
Deduction
Limit
2021
$1,050,000
$2,620,000
2020
$1,040,000
$2,590,000
2019
$1,000,000
$2,500,000
2018
$1,000,000
$2,500,000
2017
$500,000
$2,000,000
2016
$500,000
$2,000,000
2015
$500,000
$2,000,000
2014
$500,000
$2,000,000
2013
$500,000
$2,000,000
2012
$500,000
$2,000,000
2011
$500,000
$2,000,000
2010
$500,000
$2,000,000
2009
$250,000
$800,000
2008
$250,000
$800,000
2007
$125,000
$500,000
Specific IRS Guidelines (Publication 946)
Where To Find IRS Forms & Official Guidance
What Equipment Qualifies?
Land / Farmland
Sport Utility Vehicles (SUVs) & Other On-Road Vehicles
Section 179 Examples For New & Used Heavy Equipment Purchases
Example 1: Used Construction Crawler Dozer Purchase
Example 2: Compact Tractor Purchase Used For Business & Personal Purposes
Example 3: Power Generator Equipment Rental
Example 4: New John Deere 870G Construction Excavator Purchase
Example 5: Purchase A Used Grove Crane Over 2,000 Miles Away
Important Note
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