2023 Section 179 Limits (+Bonus Depreciation) – How Much Can You Save?

Did you buy equipment for your business in 2023?

Did you know you may be able to write the entire purchase off immediately? (There’s still time before the end of the year… but many assets are hard to get your hands on right now. Don’t snooze or you might lose…)

Even better – finance the equipment, save taxes immediately, and pay for the equipment over time as it makes you money. Right?

Super special note…

I’m no accountant. If you make tax decisions based on what I tell you…

…well…

…let’s just assume you’re going to make sure you do what your actual accountant tells you. That would be a smart idea.

How Does Section 179 Work?

So… again…

I’m not an accountant.

(I keep saying that to remind myself that I made good choices. Doing people’s taxes would totally suck.)

… but in the equipment finance industry…

Every year – near the end – our clients call and need equipment financed before January 1.

So they don’t lose their big giant tax write-off.

That tax write-off is called Section 179.

Section 179 is part of the tax code. It has been around since 1958 but it used to be small.

In 2000, the maximum deduction under Section 179 was $20,000.

In 2003 it jumped to $100,000.

Now with Section 179 you can deduct over $1,000,000… subject to a few exceptions…

How Much Can You Deduct for Section 179 in 2023?

The Tax Cuts and Jobs Act of 2017 doubled the Section 179 Deduction to $1 million and then indexed that amount to inflation. For 2023 the maximum deduction is $1,160,000.

That means you can buy up to $1,160,000 worth of equipment in 2023 and elect to immediately write off those assets.

Note that you don’t have to write off the assets immediately.

You could still depreciate those assets over whatever your tax person decides the “useful life” is (usually 5-15 years depending on what it is…)

If you don’t have very much (or any) profit in 2023 that may be the smarter idea… but assuming you made money in 2023… if you need to (or just should) buy equipment – maybe go ahead and pay less taxes.

What Kind of Assets Can Section 179 Be Used For?

Almost any durable good can qualify for Section 179. “Durable good” means anything that isn’t used up – so disposable gloves would not qualify, but anything that doesn’t get depleted would.

If it’s used for your business (the asset must be used more than 50% for your business), you can write it off.

That means computers, phones, desks, as well as larger types of equipment.

Trucks, construction equipment, port-a-potties, dentist chairs. Anything.

It doesn’t have to be new either. You can use section 179 if you purchase used equipment.

There are only a few exceptions:

• Custom software

• Building improvements

• Vehicles under 6,000 lbs

Also, the assets have to not be acquired from a related party (like your kids or your parents…)

Can You Write off More Than the Maximum Under Section 179?

There’s another part of the tax code, Section 168(k).

Section 168(k) allows for what’s called “bonus depreciation.”

Bonus depreciation lets you expense purchases immediately –like Section 179.

That means you buy the assets in 2023 and even though you’d normally depreciate them over 5-20 years, you can elect to expense them immediately.

So… how does that work with Section 179?

It’s a little bit confusing… but…

You can claim both Section 179 AND section 168(k) – but that doesn’t mean you get to “double dip.”

So… if you purchase $500,000 worth of assets in 2023 that are Section 179 eligible, you can’t claim BOTH deductions on those assets.

But… imagine purchasing $1,500,000 in capital equipment during 2022

Remember you can only apply the first $1,160,000 under Section 179.

That leaves $420,000.

Your accountant can use bonus depreciation to expense that $420,000 overage immediately.

Should You Take Advantage of Section 179 and/or 168(k)?

Remember the part where I said you should really listen to your accountant before me?

That’s still true.

With that said, if you’re going to be very profitable in 2023, you may want to use Section 179 and/ or bonus depreciation to offset as much of the profit as possible.

If you weren’t profitable in 2023 or are seeing profits low enough to keep you in a lower tax bracket, it may make sense to depreciate the assets over their useful life.

If you do plan to purchase equipment this year to take advantage of Section 179 and/or 168(k)… we’re happy to help you finance that equipment.