Section 179: what’s new?

Changes to Section 179 may entice physician practices to invest in new equipment

In spite of the uncertainty of healthcare reform and concerns about the economy, this may not be a bad time for physicians affiliated with your IDN to invest in their businesses. Recent changes to IRS Section 179 include the following:

  • An increase of the total amount available for deduction to $500,000 (up from $250,000).
  • The ability for business owners to purchase up to $2 million in equipment (up from $800,000) before write-offs are subject to a phase-out.
  • An extension to tax year 2010 of the 50 percent bonus depreciation.

The Small Business Jobs and Credit Act of 2010 means more good news for small business owners. Up to the signing of the Act, taxpayers could elect to write off the costs of certain property purchased for a trade or business. So, for the taxable year beginning in 2010, taxpayers could write off up to $250,000 of capital expenditures, subject to a phase-out once these expenditures exceeded $800,000. The thresholds had been scheduled to revert to $25,000 and $200,000 respectively, after 2010. But, the Small Business Jobs and Credit Act of 2010 increased the thresholds to $500,000 and $2 million for the taxable years 2010 and 2011.

What is it?
Section 179 essentially allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. In other words, doctors and other small business owners who buy or lease a piece of qualifying equipment can deduct the full purchase price from their gross income, thereby investing in their business. Indeed, if a small business can write off an entire amount, it might consider adding more equipment (including software) sooner rather than later.

Even with the caps considered ($500,000 on the total write-off amount in 2010 and $2 million on the total equipment purchase), it’s an attractive deal for small- and even medium-sized businesses.

Material goods that usually qualify for the Section 179 deduction include the following:

  • Equipment purchased for business use.
  • Tangible personal property used in business.
  • Business vehicles with a gross weight exceeding 6,000 pounds.
  • Computers and computer software.
  • Office equipment and furniture.
  • Property attached to the building that is not a structural component of the building.
  • Partial business-use equipment (e.g., equipment purchased for both business and personal use). The deduction is based on the percentage of time the equipment is used for business purposes.

In most cases, non-qualifying equipment includes:

  • Real property (e.g., land, building, permanent structures and components of personal structures).
  • Air conditioning and heating units.
  • Property used outside of the United States.
  • Property used to provide lodging.
  • Property acquired as a gift or by inheritance.
  • Property not considered personal property.