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Section 179 Calculator

IRS Code Section 179 allows small businesses to deduct 100% of the cost of purchased or financed equipment in the year of acquisition. Equipment write offs can also be applied to reduce State Income Tax and Self Employment Tax.

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Section 179

2021 DEDUCTION LIMIT IS $1,050,000 (ONE MILLION & FIFTY THOUSAND DOLLARS)

Available for new and used equipment, vehicles, machinery, etc., in addition to off-the-shelf software purchases (not applicable for custom software). To use the deduction in tax year 2021, the property must be financed and put into service by end-of-day on December 31, 2021.

BONUS DEPRECIATION: 100% FOR 2021

Bonus Depreciation is in addition to Section 179. Some years it isn’t applicable but in 2021 it is one hundred percent. What that means is that equipment costing more than $1,050,000 can still get the full deduction. Important: Section 179 has always been available for the purchase of new or used equipment but 2021 is the first time that Bonus Depreciation is available to both new and used equipment. Also note worthy is that businesses with a net loss qualify to deduct some of the cost of new equipment and carry-forward the loss.

2021 SPENDING CAP ON EQUIPMENT PURCHASES IS $2,620,000

Spend up to $2,620,000 on equipment. Beyond $2.62 million, the Section 179 Deduction starts to drop — dollar for dollar. This cap makes Section 179 a “small/medium business tax incentive” (FYI: larger businesses that spend more than $3.67 million on equipment won’t get the tax break.)

HERE IS HOW THE 2021 SECTION 179 & BONUS DEDUCTION WORK.

Savings Example:
New/Used Equipment Purchase: $1,750,000
First Year Write Off: $1,050,000
($1,050,000 = maximum in 2021)
100% Bonus First Year Depreciation $ 700,000
($1,750,000 – $1,050,000. 100% is New in 2021)
Normal First Year Depreciation: $ 0
(20% in each of 5 years on remaining amount)
Total First Year Deduction: $1,750,000
($1,050,000 + $ 700,000 + $ 0)
Cash Savings: $ 612,500
($1,750,000 x 35% tax rate)
Equipment cost after Tax: $1,137,500 (35% first yr. deduction)
(assuming a 35% tax bracket. $1,750,000 – $612,500)

SECTION 179 QUALIFIED FINANCING

Section 179 and Bonus Depreciation are available for all leases and financing done for equipment, software, building improvements, computers, office furniture/equipment, etc. (qualified assets listed below). Contact an Aztec Financial Account Manager today to discuss your needs and how we can help you meet your goals prior to the December 31st deadline.

QUALIFYING PROPERTY & EQUIPMENT

New or Used Equipment, Off-the-Shelf Software, Vehicle for Business Use – weight 6K pounds or more, passenger vehicles capped at $11,160, Computers, Machinery, Office Furniture, Office Equipment, Other Tangible Goods. Most improvements to non-residential building interiors put in service after December 31st, 2017. Other improvements to non-residential buildings such as: HVAC, roofing, security systems, alarms and fire suppression systems. Property must be used more than 50% of the time by the business to qualify for the deduction. Note: new laws allow 100 percent depreciation to be applied to qualified film, television and live theatrical productions.

NON-QUALIFYING PROPERTY & EQUIPMENT

Custom Software, Personal Vehicle (no business use), Certain non-residential improvements (building enlargement, any elevators or escalators, internal structural framework of building, most plumbing, electrical, renewables, lighting, construction, etc.). Note that the following types of property are not eligible for the one hundred percent bonus depreciation: property used in the trade of Electric energy, water or sewage disposal services, gas or steam through a local distribution system, or transportation of gas or steam pipeline, floor-plan financing.

PROPERTY & EQUIPMENT WITH PARTIAL QUALIFICATION

If an item is used for both business and personal, the deduction will apply to the portion of time the equipment is used for business purposes.
Simple Math: Asset Cost multiplied by % Use by Business equals Amount Eligible for tax break.

Property Cost × % of Time Used for Business = The portion of the Cost Eligible for a Tax Break

Note: The property must be used more than 50% of the time for business purposes to qualify. Special rules apply for longer production period property and certain aircraft, consult a tax professional.

Bonus Savings Example:
New/Used Equipment Purchase: $ 30,000
First Year Write Off: $ 30,000
($1,050,000 = maximum in 2021)
100% Bonus First Year Depreciation $ 0
(updated to 100% in 2021. $30,000 – $30,000)
Normal First Year Depreciation: $ 0
(20% in each of 5 years on remaining amount)
Total First Year Deduction: $ 30,000
($30,000 + $ 0 + $ 0)
Cash Savings: $ 10,500
($30,000 x 35% tax rate)
Equipment cost after Tax: $19,500 (35% first yr. deduction)
(assuming a 35% tax bracket. $30,000 – $10,500)
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