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The deduction limit has increased for 2016

May 24, 2016

Section 179 of the IRS Tax Code

The deduction limit has increased for 2016

If you are thinking about buying or financing equipment this year you will be happy to know that Section 179 of the IRS tax code has increased its deduction limit for 2016 to $500,000. This deduction allows small and medium sized businesses to deduct the full purchase price of qualifying business equipment, machinery, vehicles, computers and software purchased or financed during the tax year. That means if you buy or finance a piece of qualifying equipment, and put it into service before 12/31/2016 you can deduct the full purchase price from your gross income. It's an incentive created by the government to encourage businesses to buy equipment and invest in themselves.

2016 Deduction Limit - $500,000

The deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only valid for 2016, and the equipment must be financed/purchased and delivered by 12/31/2016.

2016 Spending Cap on equipment purchases = $2,000,000

This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true "small business tax incentive".

Bonus Depreciation: 50% for 2016

Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. Note: Bonus Depreciation is available for new equipment only.

Section 179 Tax Deduction Example:

Equipment Cost:
Section 179 Deduction
Bonus Depreciation:
First Year Deduction: