Place It In Service If You Want To Deduct It

Article Highlights:

Sec 179 Expensing
Tax Planning Tool
Placed-in-Service Requirement

Section 179 is a provision of tax law that allows owners of small businesses to expense rather than depreciate equipment purchases made during the year. It is also a popular tax-planning tool allowing business owners to reduce their income for the year by making last-minute year-end purchases. For 2017 up $510,000 ($255,000 for married taxpayers filing separate) of qualifying expenses can be written off. Qualifying property includes machinery, tools, computer equipment, certain leasehold improvements, etc.

However, there is an often-overlooked requirement of Sec 179: and that is not only must the purchase be made before year-end, the purchased item must be placed-in-service placed in service before year-end in order to expense it in the year purchased.

Generally, for Sec. 179 expensing purposes, property is first placed in service when it is placed in a condition or state of readiness and available for it’s a specifically assigned function. For example, a new printer is purchased on December 29, 2017 but is not taken out of the box and connected to the computer system until January 3, 2018. Under these circumstances the printer is deductible in 2018 and not 2017.

Therefore, if you are making year-end purchases to increase your 2017 business expense deductions, be sure the property you purchase is placed in service before year’s end. Please call this office with questions.