First-Year Expensing Deduction – Section 179 Expense
You may elect first-year expensing for tangible personal property bought for business use, such as machinery, equipment, or a car, truck or computer and “off the shelf” computer software, provided the property is acquired from a non-related party. Qualified improvement property and certain improvements to nonresidential real property (e.g., roofs; heating, ventilation, and air-conditioning; fire protection and alarm systems; security systems) also qualify for expensing.
The dollar limit on first-year expensing in 2019 is $1,020,000. The dollar limit is phased out if the cost of qualifying property placed in service during the year exceeds a set dollar limit ($2.55 million in 2019).
If you use the equipment for both business and personal use, business use must exceed 50% in the year the equipment is first placed into service to claim a first-year expensing deduction. For business vehicles, the deduction may not exceed the annual depreciation limit.
The expensing deduction may not exceed the net taxable income from all businesses that you actively conduct. Net income from active businesses is figured without regard to expensing, the deduction for the employer portion of self-employment liability, or any net operating loss carryback or carryforward. You may include wage or salary income as active business income and if you are married filing jointly, also include your spouse’s net taxable income.
If net income is less than the cost of qualifying assets, expensing is limited to the income. For property bought by a partnership or an S corporation, the dollar limit and taxable income limit applies to the business, as well as the owners as individual taxpayers.
Equipment placed in service on the last day of the 2019 taxable year may qualify for the entire first-year expensing limit. You do not have to prorate the limit for the amount of time you held the property.