Code Section 179
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 179 | 12/31/2011 | The American Taxpayer Relief Act of 2012 | Increased expensing for small business depreciable assets | -2,352 |
| 179 | 12/31/2011 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | Temporary Extension of Increased Small Business Expensing | -307 |
| 179 | 3/18/2010 | The Hiring Incentives to Restore Employment Act | Increase in Expensing of Certain Depreciable Business Assets | -35 |
| 179 | 12/31/2009 | The Small Business Jobs Act of 2010 | Increase and expand expensing of certain depreciable business assets | -2,177 |
| 179 | 12/31/2008 | The American Recovery and Reinvestment Act of 2009 (Public Law 111-5) | Temporary increase in limitations on expensing of certain depreciable business assets | -41 |
Increased expensing for small business depreciable assets
Explanation of Provision
The provision provides that the maximum amount a taxpayer may expense, for taxable years beginning in 2012 and 2013, is $500,000 of the cost of qualifying property placed in service for the taxable year. The $500,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2,000,000.
In addition, the provision extends, for taxable years beginning in 2013, the treatment of off-the-shelf computer software as qualifying property. The provision also extends the treatment of qualified real property as eligible section 179 property for taxable years beginning in 2012 and 2013, including the limitation on carryovers and the maximum amount of $250,000 for each taxable year. The provision makes a technical drafting correction by clarifying that for the last taxable year beginning in 2013, the taxable income limitation 436 is computed without regard to any additional depreciation expense resulting from the application of the carryover limitation of section 179(f)(4). For taxable years beginning in 2013, the provision continues to permit a taxpayer to amend or irrevocably revoke an election for a taxable year under section 179 without the consent of the Commissioner.
Temporary Extension of Increased Small Business Expensing
Explanation of Provision
Under the provision, for taxable years beginning in 2012, the maximum amount a taxpayer may expense is $125,000 of the cost of qualifying property placed in service for the taxable year. The $125,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $500,000. The $125,000 and $500,000 amounts are indexed for inflation.
In addition, the provision extends the treatment of off-the-shelf computer software as qualifying property,1606 as well as the provision permitting a taxpayer to amend or irrevocably revoke an election for a taxable year under section 179 without the consent of the Commissioner for one year (through 2012).
For taxable years beginning in 2013, and thereafter, the maximum amount a taxpayer may expense is $25,000 of the cost of qualifying property placed in service for the taxable year. The $25,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $200,000.
Increase in Expensing of Certain Depreciable Business Assets
Explanation of Provision 360
The Act increases for one year the amount a taxpayer may deduct under section 179. The Act provides that the maximum amount a taxpayer may expense, for taxable years beginning after 2009 and before 2011, is $250,000 of the cost of qualifying property placed in service for the taxable year. The $250,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000.
Increase and expand expensing of certain depreciable business assets
Explanation of Provision
The provision increases the maximum amount a taxpayer may expense under section 179 to $500,000 and increases the phase-out threshold amount to $2 million for taxable years beginning in 2010 and 2011.1334 Thus, the provision provides that the maximum amount a taxpayer may expense, for taxable years beginning after 2009 and before 2012, is $500,000 of the cost of qualifying property placed in service for the taxable year. The $500,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2 million.
The provision permits a taxpayer to elect to temporarily expand the definition of property qualifying for section 179 to include certain real property—specifically, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property—purchased by the taxpayer.1335 The maximum amount with respect to real property that may be expensed under the proposal is $250,000.1336 In addition, section 179 deductions attributable to qualified real property that are disallowed under the trade or business income limitation may only be carried over to taxable years in which the definition of eligible section 179 property includes qualified real property. Thus under the provision, if a taxpayer’s section 179 deduction for 2010 with respect to qualified real property is limited by the taxpayer’s active trade or business income, such disallowed amount may be carried over to 2011 in the manner under present law. Any such amounts that are not used in 2011, plus any 2011 disallowed section 179 deductions attributable to qualified real property, are treated as property placed in service in 2011 for purposes of computing depreciation. The carryover amount from 2010 is considered placed in service on the first day of the 2011 taxable year.1337
Temporary increase in limitations on expensing of certain depreciable business assets
Explanation of Provision80
The provision extends the $250,000 and $800,000 amounts to taxable years beginning in 2009.81
80- The provision was subsequently amended by section 402 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen of this document.
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81- The provision was extended to taxable years beginning after 2009 and before 2011 by section 201 of the Hiring Incentives to Restore Employment Act of 2010, Pub. L. No. 111–147, described in Part Seven. Additionally, the provision was temporarily expanded and extended for taxable years beginning in 2010 and 2011 by section 2021 of the Small Business Jobs Act of 2010, Pub. L. No. 111–240, described in Part Fourteen, and modified and extended for taxableyears beginning in 2012 by section 402 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen of this document.
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360- The provision was temporarily expanded and extended for taxable years beginning in 2010 and 2011 by section 2021 of the Small Business Jobs Act of 2010, Pub. L. No. 111–240, described in Part Fourteen. The provision was further modified and extended through 2012 by section 402 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen of this document.
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436- Sec. 179(b)(3).
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1334- The provision was modified and extended for taxable years beginning in 2012 by section 402 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen.
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1335- For purposes of the provision, qualified leasehold improvement property has the meaning given such term under section 168(e)(6), qualified restaurant property has the meaning given such term under section 168(e)(7) (and includes a building described in section 168(e)(7)(A)(i) that is placed in service after December 31, 2009 and before January 1, 2012), and qualified retail improvement property has the meaning given such term under section 168(e)(8) (without regard to section 168(e)(8)(E)).
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1336- For example, assume that during 2010, a company’s only asset purchases are section 179- eligible equipment costing $100,000 and qualifying leasehold improvements costing $350,000. Assuming the company has no other asset purchases during 2010, and is not subject to the taxable income limitation, the maximum section 179 deduction the company can claim for 2010 is $350,000 ($100,000 with respect to the equipment and $250,000 with respect to the qualifying leasehold improvements).
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1337- For example, assume that during 2010, a company’s only asset purchases are section 179- eligible equipment costing $100,000 and qualifying leasehold improvements costing $200,000. Assume the company has no other asset purchases during 2010, and has a taxable income limitation of $150,000. The maximum section 179 deduction the company can claim for 2010 is $150,000, which is allocated pro rata between the properties, such that the carryover to 2011 is allocated $100,000 to the qualified leasehold improvements and $50,000 to the equipment.
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1606- The temporary extension of the definition of qualifying property to include qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property is not extended.
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