New Sec. 179 Rules Have Pleasant Surprise

The small jobs bill passed on September 27^th extended the Sec. 179 depreciation limit to $500,000 and also expanded the investment ceiling to $2,000,000. This applies to asset put into service in 2010 and 2011. Additionally, in 2010 the 50% bonus depreciation will continue to apply on assets placed into service.

What is Sec. 179 depreciation? It is the ability to fully depreciation an asset you placed into service that year instead of depreciating it over its lifetime. For example, if you place a 5-year asset into service for $100k, you normally would only get a $20k per year write off. If you Sec. 179 the asset in the one year, you get to depreciation the entire amount, greatly reducing your tax liability for investing in assets in your business.

Many small businesses placing assets in service in 2010 will get a big additional break if they are above the normal $250k. Remember, the assets don’t necessarily need to be purchased in the year, but placed in service in that year. It is also important to remember that if you place too many assets into service you may lose your ability to Sec. 179 depreciate your assets that year, and be forced to depreciation them over their IRS tabled lives. Nobody wants to lose the ability to accelerate depreciation. Usually, it is advantageous to accelerate deductions and defer revenue. This is where the $2 million investment expansion comes into play. You can place up to $2 million of assets into service during the year without phasing out your ability to Sec. 179 the assets up to $500k in that year. Previously that number was only at $800k. This big increase gives more businesses the Sec. 179 benefit.

There is something really interesting that came out of this bill and has hardly been talked about. Not only were the limits above expanded, but also were qualifying assets.

Deductions Now Allowed for Real Property Costs!

When I first learned about this I thought it applied to investment property purchased during the year (even my last CPE class made it sound that way). It does not seem we are got that lucky; however, below are the assets now eligible for Sec. 179 depreciation.

- Improvements to the interiors of leased nonresidential buildings. Some costs are ineligible like elevators, and the improvements must be placed in service more than three years after the date the building was first placed in service.

- Restaurant building and improvement costs, as long as more than 50-percent of the building’s sq/ft is used for meal preparation and seating.

- Improvements to interiors of retail buildings. Similar as the rules for nonresidential buildings.

Hopefully the rest of the expired 2009 provisions are extended in November or December.