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IRS Section 179
Under IRS Section 179, equipment purchases of up to $100,000* can be expensed (deducted from taxable income) in the first year eligible property is placed in service in a trade or business. Finance leases ($1.00 buyout) qualify for this deduction in their year of inception.
The 2003 law quadrupled the amount of qualified property that can be expensed under IRS Section 179 from $24,000 to $100,000 (indexed for inflation) for tax years 2003, 2004, and 2005. The American Job Creation Act of2004 has extended the use of the $100,000 ceiling for two more years, through 2007. Qualifying property now also includes off-the-shelf computer software.
Any purchase in excess of $400,000* (indexed for inflation) reduces the $100,000* Section 179 limit (dollar amounts are indexed for inflation).
For example, if you purchase $410,000 in qualifying property, the Section 179 deduction is limited to $90,000.
The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income (determined after application of the investment limitation) derived from the active conduct of any trade or business during the tax year. Costs disallowed under this rule may be carried forward an unlimited number of years subject to the ceiling amount for each year.
The maximum amount of asset cost that can be expensed by year is: $100,000* for 2005 through 2007. For example, if you purchase or lease a piece of equipment for $45,000 and install it in 2005, you are eligible to take a $45,000 tax deduction in the respective year.
*Please note: Contact your tax advisor for specific information regarding IRS Section 179 and all accounting procedures.
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