Alert

Section 179 Expensing: What You Need to Know for the 2019 Tax Year

January 23, 2020

Section 179 expensing allows you to fully expense all, or a portion of, your purchased assets in a single tax year, instead of capitalizing and deducting through deprecation over a number of years. The Tax Cuts and Jobs Act altered the section 179 expensing rules. For the 2019 tax year, the maximum deduction rose to $1,020,000, and the investment phase-out now begins at $2,550,000 and is completely phased out when $3,570,000 of section 179-eligible assets have been placed in service for the tax year. This accelerated expensing results in reduced taxes.

Now that we are actively applying the new section 179 expensing guidelines to 2019 tax returns, let’s walk through the current rules and dive into some specific examples.

The Guidelines:

  • The asset must be used for business purposes over 50 percent of the time to qualify.
  • New and used tangible property qualify, including off-the-shelf computer software.
  • Certain real property improvements qualify. Real property that qualifies for section 179 expensing is defined as qualified real property, which is an improvement to nonresidential real property as long as the improvement is placed in service by the taxpayer after the date such nonresidential real property was first placed in service by any person; and is (a) Qualified Improvement Property (“QIP”), (b) a roof; (c) heating, ventilation, and air-conditioning property (“HVAC”) (a central HVAC system includes all components that are in, on, or adjacent to the nonresidential real property); (d) a fire protection and alarm system; or (e) a security system.

QIP is a new definition that encompasses leasehold improvements, retail improvements and restaurant property. Until a technical correction is made, QIP is assigned a 39-year life and therefore is not eligible for bonus depreciation. Currently, section 179 expensing is a great option for potentially writing off some, or all, of your QIP expenses.

Review the examples below to see how section 179 expenses can benefit your unique situations.

Examples:

  1. What if you replace the roof on one of your office buildings this year for $800,000? Will this qualify?
    • Yes, if you meet the other section 179 limitations for income and total section 179 property placed in service (“PIS”) for the year.
  2. What if you replace the roof on one of your office building investments this year for $800,000, and you partially dispose of the old roof in the current tax year? Will this qualify?
    • Yes, if you meet the other section 179 limitations for income and total property PIS for the year. The new roof will be capitalized on your depreciation schedule and expensed under section 179 provision and the old roof is removed.
  3. What if you spent $750,000 on leasehold improvements this year for one of your retail strip plazas?
    • Yes, if you meet the other section 179 limitations for income and total section 179 property PIS for the year.
  4. What about QIP that exceeds the section 179 thresholds or if you do not have any current year income, do you have any options?
    • Yes, cost segregation will provide value using the bonus depreciation rules and shorter depreciable lives.

The new section 179 expensing guidelines can potentially save you valuable dollars. If you have questions about section 179 expensing or how to apply them to your unique needs, contact Ron Wainwright or your trusted Cherry Bekaert professional.