Equipment Expensing for Tax Purposes

Will the existing 2014 rules be altered?


On December 31, 2012, the Congress allowed a number of provisions which were favorable to taxpayers to expire. On January 2, 2013, our national legislators passed an extension of many of those laws. Among them was the restoration to the 2011 levels for Section 179 Depreciation and the reinstating of Bonus Depreciation. Both of these rules allow a business to expense (write off) for tax purposes the cost of equipment purchased in the year placed in service, rather than using normal depreciation rules, writing it off over, usually 2 to 7 years, depending on the type of equipment.

Most businesses will need to purchase equipment at some time or another.

Most businesses will need to purchase equipment at some time or another.

These provisions were enacted to encourage businesses to make investments in equipment, which they perhaps might not otherwise make, thereby creating jobs and otherwise improving both the business and the local, state and national economies.

Section 179 Election to Expense Assets is Back

All year long we kept reminding our clients and friends that the Section 179 deduction, the income tax election to expense certain assets rather than to depreciate their cost over several years, was limited to $139,000 for 2012. That was the law in 2012 and this limit was less than the generous 2011 limit of $500,000.

iStock_000017832299XSmallOn January 2, 2012, the American Taxpayer Relief Act of 2012 was passed that included a provision to retroactively raise the 2012 limit back to $500,000. Since it changed the limit available in 2012 on January 2, 2013, most businesses were unable to take advantage of the higher limit in their 2012 tax planning efforts. That’s the bad news.

The good news is the provision that expired on December 31, 2011 was extended for 2012 and 2013. So, a quick summary of the Section 179 rules for 2013 is as follows.