Section 179 Updates for 2023

Section 179 updates for 2023 present an enticing tax benefit tailored for small and medium-sized enterprises. Its simplicity makes it accessible and user-friendly. In essence, Section 179 within the IRS tax code permits businesses to subtract the complete buying cost of eligible equipment and/or software acquired or financed in the tax year. This implies that upon purchasing (or leasing) qualifying equipment, you can subtract the ENTIRE PURCHASE PRICE from your overall income. This incentive was established by the U.S. government to motivate businesses to procure equipment and foster self-investment.

This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2023, the equipment must be financed or purchased and put into service between January 1, 2023 and the end of the day on December 31, 2023.

Spending Cap to qualify

$2,890,000 is the maximum amount that can be spent on equipment in 2023 before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $4,050,000 on equipment won’t get the deduction.)

Section 179 Updates for 2023 Depreciation Deductions

Typically, if a property constitutes a capital expenditure, you’re unable to deduct its entire cost in a single year. Instead, you generally need to spread out the deduction through depreciation over subsequent years until you’ve fully recouped its cost.

Depreciation (noun) /dəˌprēSHēˈāSH(ə)n/: The recovery of the cost of the property over a number of years through tax deductions.

You have the option to choose Section 179, allowing you to recuperate the entire or a portion of the qualifying property’s cost, up to a specified dollar limit, in the tax year you put the qualifying property into use. However, the overall deductible cost, after applying the dollar limit, is capped at the taxable income generated from actively conducting a trade or business in that tax year. The deduction for Section 179 expense occurs in the same year you put the qualifying property into service.

For certain qualified property* placed in service after December 31, 2022, and before January 1, 2024, you can elect to take a special depreciation allowance of 80%. This allowance is taken after any allowable Section 179 deduction and before any other depreciation is allowed. There are also special rules and limits for depreciation of property, for more information, refer to Publication 946, How to Depreciate Property.
* acquired after September 27, 2017

Depreciable or Not Depreciable

The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles, and furniture. You can’t claim depreciation on property held for personal purposes. If you use property, such as a car, for both business or investment and personal purposes, you can depreciate only the business or investment use portion. Land is never depreciable, although buildings and certain land improvements may be.

Frequently asked questions about Section 179 Updates for 2023 and depreciation

Spending Cap to qualify

$2,890,000 is the maximum amount that can be spent on equipment in 2023 before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $4,050,000 on equipment won’t get the deduction.)

Section 179 Updates for 2023 Depreciation Deductions

Typically, if a property constitutes a capital expenditure, you’re unable to deduct its entire cost in a single year. Instead, you generally need to spread out the deduction through depreciation over subsequent years until you’ve fully recouped its cost.

Depreciation (noun) /dəˌprēSHēˈāSH(ə)n/: The recovery of the cost of the property over a number of years through tax deductions.

You have the option to choose Section 179, allowing you to recuperate the entire or a portion of the qualifying property’s cost, up to a specified dollar limit, in the tax year you put the qualifying property into use. However, the overall deductible cost, after applying the dollar limit, is capped at the taxable income generated from actively conducting a trade or business in that tax year. The deduction for Section 179 expense occurs in the same year you put the qualifying property into service.

For certain qualified property* placed in service after December 31, 2022, and before January 1, 2024, you can elect to take a special depreciation allowance of 80%. This allowance is taken after any allowable Section 179 deduction and before any other depreciation is allowed. There are also special rules and limits for depreciation of property, for more information, refer to Publication 946, How to Depreciate Property.
* acquired after September 27, 2017

Depreciable or Not Depreciable

The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles, and furniture. You can’t claim depreciation on property held for personal purposes. If you use property, such as a car, for both business or investment and personal purposes, you can depreciate only the business or investment use portion. Land is never depreciable, although buildings and certain land improvements may be.

Frequently asked questions about Section 179 Updates for 2023 and depreciation