Ainer & Fraker, LLP – Whenever property is purchased for use in a business and that property has a useful life of more than one year, its cost must be deducted over its useful life. This accounting procedure is referred to as depreciation.

The number of years the property must be depreciated is largely dependent upon the type of property it is, although sometimes the type of business in which it is used also determines its assigned life. However, there are exceptions to the depreciation requirement: 

Sec 179 Expensing – The tax code contains a special provision that allows certain types of property to be expensed (deducted in year of purchase) rather than being depreciated. This provision is commonly referred to as Section 179 expensing and is limited to a maximum annual amount.  However, the Section 179 deduction only applies to tangible personal property such as tools, office equipment, machinery, etc. There are some other restrictions as well, so be sure to contact this office for additional details.

The annual Sec. 179 expense deduction cap for years 2010 through 2013 is $500,000.  This cap is further reduced dollar for dollar for investments in qualifying Sec 179 property in excess of $2 million.  Without further Congressional action the cap will drop to $25,000 with an investment limit of $200,000 in 2014.

Caution: The Sec 179 deduction is limited to the taxable income from any active trade or business of the taxpayer(s) including wages. 

Off-the-Shelf Computer Software – Off-the-shelf computer software placed in service 2003 through 2013 is property eligible for Sec 179 expensing.

Certain Real Property Can Also Be Expensed – Certain real property is also eligible for Sec 179 expensing. For property placed in service in any tax year beginning in 2010 through 2013, the up-to-$500,000 deduction of property expensed can include up to $250,000 of qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property).

Please reference the following link for further examples of Business Property Depreciation.


John Erik Fraker, Esq.

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John Erik Fraker, Esq.

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