Michigan Business Lawyer Blog

Generally, if you purchase equipment for your business you have to depreciate the cost of that equipment little by little over multiple years. However, for certain equipment purchases, IRS Code Section 179 provides a way for businesses to deduct the entire cost of an equipment purchase in one year instead of over a number of years.

Quite simply, Section 179 allows businesses to simply expense certain equipment purchases instead of depreciating them. In practical terms, a Section 179 deduction means that a business gets to claim all of the money paid for the purchased equipment in the year the equipment is purchased. If the equipment purchase was depreciated, that benefit would have to be spread out over a number of years.

There are a number of requirements for a business to use Section 179:

1. A business needs to have taxable income of at least the amount that it will expense under Section 179. This taxable income can come from a variety of sources.

2. A business can either expense items under Section 179 or depreciate those items over multiple years, but not both.

3. Any item that is expensed under Section 179 must be used for more than 50% for business purposes. If it is used less than 100% for business, only the percentage used for business purposes can be claimed.

4. Any equipment that is expensed under Section 179 should still be used 50% or more for business purposes for the same number of years that it would have otherwise been depreciated.

There are a number of items that Section 179 does not apply to such as real estate, inventory items, property purchased from a relative, heating and air conditioning units, and items already owned in a previous year that are being converted to a business use.

If you own a Michigan business and have any questions about taking a Section 179 deduction, you should contact an accountant or a Michigan business lawyer for more information.