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How to qualify for section 179
AI accountant’s answer:
To qualify for Section 179 expensing, you must meet the following conditions: 1. Eligible property: The property you're planning to expense must be tangible personal property, computer software, or qualified improvement property. This includes machinery, equipment, computers, furniture, and some building improvements. Real property, like land or buildings, does not qualify for Section 179. 2. Business use: The property must be used primarily (more than 50%) for business purposes. The portion of the cost that corresponds to the business use percentage is eligible for the Section 179 deduction. 3. Acquisition: The property must be purchased or financed and placed in service during the tax year in which you are claiming the deduction. "Placed in service" means that it is ready and available for use in your business. 4. Income limitation: The Section 179 deduction is limited by your taxable income from the active conduct of your business. If your taxable income is less than the cost of the qualifying property, your deduction will be limited to the taxable income amount, but the unused portion of the deduction can be carried forward to future years. 5. Annual maximum limit: For the tax year 2022, the maximum Section 179 deduction allowed is $1,080,000. This limit will be reduced if the total cost of all qualifying property placed in service during the year exceeds $2,700,000. The deduction amount will be phased out on a dollar-for-dollar basis for costs above this threshold. 6. First-year bonus depreciation: Keep in mind that Section 179 expensing should be claimed before the first-year bonus depreciation, which allows businesses to deduct a portion of the cost of qualifying property in addition to the Section 179 deduction. To claim a Section 179 deduction, you need to fill out IRS Form 4562, Depreciation and Amortization, when filing your business tax return. Make sure to provide detailed information about the property, cost, and the business-use percentage. It's always a good idea to consult with a tax professional to ensure you are optimizing your deductions and adhering to the relevant tax laws.
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Isaiah McCoy, CPA
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