foundation project management
28 September 2017

How to Save With the Section 179 Deduction [Calculator Tool for 2018]

If you haven’t heard of the Section 179 Deduction, you may have missed out on some tax savings in recent years. Thanks to a provision in the U.S. Internal Revenue Code (that’s what the IRS uses) and updates from the Tax Cuts and Jobs Act, you might be able to deduct the full price of equipment or software you buy for your business in 2018.

What Is the Section 179 Deduction?

Section 179 allows you to take the cost of certain types of business property and subtract up to $1 million of it from your taxable income for the year you purchase it. Currently, eligible properties can include equipment, software or buildings. However, the deduction does reduce one dollar for every dollar over $2.5 million. So the more a business spends over $2.5 million on equipment, the more their $1 million deduction starts to go down. Try out our calculator below to see how this works.

You might be asking, “What about property costs between $1 million and $2.5 million dollars?” That’s where Bonus Depreciation comes in. For qualifying property, you would still deduct just $1 million. But while Bonus Depreciation isn’t technically part of Section 179, it can often be used as “Part 2” of Section 179 savings. When it’s applied in 2018, businesses get to write off an additional 100% of whatever they spent on new equipment over that $1 million limit. And that can include money spent over $2.5 million!

Section 179 Deduction Changes

The Section 179 Deduction isn’t new, but it has changed. “Section 179” itself just refers to a section of the Internal Revenue Code — and there are almost 10,000 sections! So it wasn’t just tacked on by the last Congress. Until the Protecting Americans from Tax Hikes Act of 2015 (PATH), however, it had been subject to year-to-year amendments and stimulus acts. PATH “permanently” raised the deduction limit of $500,000 and brought back Bonus Depreciation.

That said, the Tax Cuts and Jobs Act of 2017 (TCJA) expanded the newly stabilized Section 179 provisions for 2018. TCJA raised the deduction and phase-out limits for businesses from just $500,000 and $2 million, respectively. Both numbers are scheduled to increase with inflation. It also increased Bonus Deprecation, which in 2017 deducted only 50%, and added to the definition of qualified property.

Section 179 Deduction Savings Calculator

To see how Section 179 savings can work for 2018, enter the amount you might spend on software or equipment, and see the cash you might save on your purchase.

Section 179 Deduction Savings Calculator

Section 179 Deduction: $0
Bonus Depreciation Deduction: (up to 100%) $0
Normal Year 1 Depreciation: $0
Total Year 1 Deduction: $0
My Cost After Tax Savings: $0
$0 (at 35% tax rate)

Thinking about financing software or equipment? You might still be able to use a Section 179 Deduction. Talk to your construction CPA about how this option may let you deduct more than you actually spend this year.

Can I Use Section 179 on Software?

Most business software is eligible for the Section 179 Deduction — even if it’s leased or financed. Qualifying software has to be used for income-producing activity and have a usable life of more than a year. It also has to be available for purchase to the general public and can’t be substantially modified. That essentially means, no custom-built programs.

It also means all of Foundation Software’s products are eligible. For Section 179, another contractor down the road ought to be able to buy the same software with a non-exclusive license. If they can, you should be able to deduct it.

How Do I Apply a Section 179 Deduction?

Thinking about buying an additional dozer, or looking to lease new construction accounting software? Savings from Section 179 don’t happen automatically. To benefit from the deduction, there are a few steps you need take.

  1. First, talk with your construction CPA to help you tax plan. They’ll know what qualifies for Section 179 and how you can get the most of it. They may also be able to help you make the right purchase for your business — especially if you’re looking at accounting software.
  2. Next, purchase or finance what you need for your business. You can only deduct what you’ve spent for the current year. You have to act before December 31 to make those costs eligible. So make sure you don’t put it off for too long, and start the process as early as possible.
  3. Finally, fill out Part 1 of Form 4562 from the IRS and attach it with your tax return. Your CPA can assist you and also help with any Bonus Depreciation you might be able to take.

Get started today by connecting with your construction tax professional for more details on Section 179. Don’t have a construction CPA? Then visit our CPA directory to find a firm in your area.

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