Section 179 Expense Election - Immediate deduction of assets

[Evan Barney]

Hi everyone, I am currently taking a Tax Analysis class at my university and I came across Section 179 in the tax code. Based on the discussion in class, it seems that as a business owner you can elect to immediately expense cost of an asset, rather than recover cost over time through MACRS depreciation. 

To my understanding, in previous years Section 179 only applied to 5 YR and 7 YR Personal Property; which includes vehicles, computers, peripheral equipment for 5 YR and furniture & fixtures, machinery, and equipment for 7 YR. 

So my first question: Does this mean that I can immediately deduct the cost of assets such as major appliances from my Business Income? I would appreciate any examples anyone has regarding the use of Section 179. 

Furthermore, I saw that the new 2018 tax code has expanded Section 179 to include 15 YR qualified improvements. Specifically, "any improvement to an interior portion of a building that is nonresidential real property if such improvement is placed in service after the date such building was first placed in service". 

Hence my second question: Does this addition to only relate to Commercial and Industrial real estate due to the "nonresidential real property" clause? And, is there more clarification as to what is classified as an "improvement"? 

I know this is a long post so thanks in advance if you read through it all! I appreciate any responses. 

[Ashish Acharya]

@Evan Barney,

You are absolutely correct and yes you can’t take section 179 on residential property. 

But section 179 has some limitations:

1) you need to have income to take the expense 

2) there is a threshold of max 1million and it phases out once you are over 2.5 million of asset addition. 

For most of the small investors, The threshold shouldn’t be an issue, but generally income limitation is an issue.

Most of small investor shows tax loss or very minimal expense due to depreciation.

 There are other ways to take full deduction such as de minimis safe harbor or 100% bonus depreciation. 

Yes there is very detailed guidance on what is improvements as all the repairs can be deducted right away, not improvements.