Cliff Beacham CPA | email cliffbeacham@cpa.com | California | Tel: (949) 813-1349
IRC (Internal Revenue Code) Section 179
This where you start getting involved with ‘basis’ which is another way of saying tax value - what the IRS
recognize - never mind what you think. This means you have to calculate the tax value based usually on cost
(according to IRS rules not GAAP) and keep another set of books according to the IRS regulations.
Section 179 has to be elected on Form 4562 (shown above) and then you have to maintain the records. Many
taxpayers do not keep thes tax records and this can be a source of queries from the IRS - which are a pain
and cost money to deal with so it’s better to set up a small system to keep the information. For example a 5-
year asset has to be kept for 5 years unless you want to get a recapture of the tax write-off. Since 179 allows
you to elect to write off 100% you may find the entire selling price ha to be recaptured.
What can you include - Long-term tangible personal property
This includes:
Machinery and Computer Hardware (but sometimes software as well), other equipment and furniture.
Specifically excluded (just in case you think the above description is ambiguous):
Land and Permanent Buildings/structures incl Fences, Parking and Swimming pools
Inventory
Intangible property such as Trade Marks and Patents etc
Property used less then 50% or outside the US
Air conditioning and heating units (the only one that is not obvious)
The > 50% rules is applied by allowing the % under 50% to the elected amount - which you can choose -
however the amount may not create a loss in the business.
The property may be new or used but not purchesed from a relative or another business that you control.
In 2015 the maximum amount was set at $500,000 (for Federal tax - California is only $25,000 and No that is
not a misprint).
There is a phase-out dollar for dollar when your purchases reach >$2m but the good news is that you can
carry the balance not claimed forward year after year.
A common claim is for trucks used in a business so go to the next page and see a discussion about trucks.
For more, call Cliff at (949) 813-1349
Form 4562 is where you detail your section 179 election
While the form covers all Depreciation and Amortization of property, part 1
deals with the Election to Expense Certaim Property under Section 179.
At present (2015 tax year) the Federal allowance is $500,000 but
unfortunately California (State Tax) allows only $25,000.