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Depreciation and Section 179 Expense Deductions

Small business owners can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property.

The Small Business Jobs Act (SBJA) of 2010 increases the IRC section 179 limitations on expensing of depreciable business assets and expands the definition of qualified property to include certain real property for the 2010 and 2011 tax years.

Under SBJA, qualifying businesses can now expense up to $500,000 of section 179 property for tax years beginning in 2010 and 2011. Without SBJA, the expensing limit for section 179 property would have been $250,000 for 2010 and $25,000 for 2011.

The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2,000,000.

The definition of qualified section 179 property will include qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property for tax years beginning in 2010 and 2011.

If you are looking to purchase new equipment for your shop, you now have $12 billion in tax incentives to help ease your decision. The bonus depreciation program allows companies to write off 50 percent of the cost of newly depreciable property.

SBJA also removes cellular telephones and similar telecommunications equipment from the definition of listed property for tax years beginning in 2010.

Depreciation limits on business vehicles. The total depreciation deduction (including the section 179 expense deduction) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2010 is increased to $3,060. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2010 is increased to $3,160.

Caution. These limits are reduced if the business use of the vehicle is less than 100%.

For more information on IRS regulations for 2010, visit www.irs.gov.