There’s still time to leverage significant tax breaks for purchasing equipment before December 31. Here’s what you need to know about the Section 179 tax deduction and bonus depreciation for 2024:
Section 179: Full Deduction Available
- 100% Deduction: Section 179 allows businesses to deduct the full cost of qualifying new or used equipment purchased by year-end.
- Increased Limits: The maximum deduction is $1,220,000 for 2024, up by $60,000 from 2023. The spending cap has also increased to $3.05 million.
- Caution: There are many scenarios in which the Section 179 deduction may be limited, so consult with your Stephano Slack tax professional to understand if your business can use Section 179 deduction.
Bonus Depreciation: Declining but Still Very Useful
- 2024 Rate: Bonus depreciation drops to 60% of eligible equipment costs, down from 80% in 2023. It is currently scheduled to decline by 20% each year until it is phased out in 2027.
- More Flexible than Section 179: Many of those potential limitations of Section 179 do not exist for Bonus Depreciation.
Regular Tax Depreciation
- The portion of the purchase price of equipment that is not eligible for Section 179 or bonus depreciation is then subject depreciation over 3-10 years depending on type of equipment.
Qualifying Purchases
Eligible items for Section 179 and bonus depreciation include:
- Machinery and equipment
- Office furniture and computers
- Business and off-the-shelf software
- Vehicles and clean energy equipment, such as EVs and solar panels
Leasing Equipment
- In some scenarios, businesses lease equipment instead of purchasing the equipment. Generally, leasing equipment will provide a deduction evenly spread over the term of the lease. Therefore, leasing equipment at the end of the year is generally NOT an effective strategy to get a large immediate tax break.
- Consequently, if a business can obtain outside financing with nearly identical terms to a lease and purchase the same equipment then they would be able to potentially get a much larger immediate tax deduction with Section 179 or bonus depreciation.
Important Reminders
- Put Into Service: To qualify, equipment must be operational by December 31, 2024.
- State Rules Vary: Many states don’t follow federal guidelines for Section 179 or bonus depreciation, so consult with your Stephano Slack tax professional to understand local impacts.
Looking Ahead
- 2025 Changes: Bonus depreciation drops to 40% next year, making Section 179 even more valuable.
- Inflation Adjustments: Section 179 limits are adjusted annually for inflation, with increases expected in 2025.
Plan Now to Save Later
Strategic planning is essential to maximize tax savings from purchasing and leasing equipment. Contact your Stephano Slack tax partner or manager at 610-687-1600 or [email protected] for tailored advice.
Author Joshua Greenbaum, CPA, is a manager in Stephano Slack’s Marlton, NJ office, bringing extensive tax and audit expertise to his clients. Known for his collaborative approach, Josh works closely with individuals at every level, from business owners to bookkeepers. He simplifies complex financial issues, helping clients make informed decisions with confidence. Josh’s dedication to maximizing client benefits shines in times of uncertainty. With his expertise in navigating complex programs and strategies, Josh helps clients secure optimal outcomes even in challenging circumstances. He can be contacted at 856-489-0222 ext. 3415 or [email protected].
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