One of the worries this year for small businesses was the Section 179 expense of $250,000 was to “sunset” and revert back to $25,000 for 2011. Items that are purchased to be used in business that have a life of more than one year are considered capital assets and have to be “capitalized” and a small portion may be deducted or “depreciated” over the “life” of the asset . Section 179 is a section of the tax code that allows business owners to “elect” to accelerate the expensing of the cost of the asset within certain limits. One of the limits is the total you are allowed to “elect” to expense and another limit is the total amount of new property purchased in a year.
The Small Business Jobs Act of 2010 increases the maximum Section 179 expense to $500,000 and the maximum amount of new equipment purchased before it begins to phase out to $2 million. If a business purchases $2.5 million or more in equipment no section 179 will be allowed.
Another limit placed upon those wishing to use Section 179 is that the property has to be “tangible personal property”, in other words desks, computers, equipment or even off the shelf computer software qualify but never real estate, until now. The Small Business Jobs Act of 2010 now allows qualified leasehold improvement property, qualified restaurant property & qualified retail improvement property to be expensed under the Section 179 guidelines. I would advise taxpayers to check with their CPA’s before applying this rule as real estate has the potential to reach the 2 million threshold quickly and that would cause the Section 179 expense to be limited or possible lost entirely.
The Small Business Jobs Act of 2010 applies to tax years beginning in 2010 and 2011 and therefore will sunset in 2011 reverting back to the $25,000 maximum deduction and maximum purchases of $200,000.
This Act might actually stimulate the economy, which is the hope of Congress!