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Section 179 and year-end planning

December 11, 2008

For business taxpayers, adding new fixed assets can be one of the easiest ways of controlling taxable income at year end. Section 179 lets taxpayers deduct currently the cost of some assets that would otherwise have to be capitalized and depreciated or amortized over a period of years.

As an anti-recession measure, Congress increased for 2008 the amount of assets for which Section 179 can be elected. For tax years beginning in 2008, taxpayers may deduct up to $250,000 of the cost of assets placed in service that would otherwise be capitalized.

There are some important limits on using Sec. 179:

- The amount of the deduction phases out dollar-for-dollar to the extent asset additions exceed $800,000.

- It doesn't apply to all property. For example, buildings and building components are ineligible, as are most assets used in a real property business.

- It is limited to active business and wage income. Sometimes Section 179 deductions are wasted when they pass through on a K-1 to a company with an operating loss, or to a retired individual with no current active income.

- The asset has to be "placed in service" by year-end. It's not enough to have ordered or paid for the asset.

You can get more information on Section 179 deductions here. You can find all of our 2008 year-end planning posts here.

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