Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
First-Year Expensing (Section 179)
Instead of recovering the cost of business property over several years through the regular depreciation process, you can recover the entire cost of property, up to a limit, in the year you place the property in service by claiming first-year expensing (also called the section 179 deduction).
Business Use Must Exceed 50%
To claim first-year expensing for qualified property, business use must exceed 50% in the first year the property is placed in service.
Placed in Service:
Property is considered to be placed in service when it is both ready and available for use in a trade or business, a tax-exempt activity, a personal activity, or for the production of income.
Even if the property is not being used, it is still considered to be in service when it is ready and available for use.
Keep in mind, property first used for personal purposes cannot qualify for the Sec. 179 deduction in a later year when its use changes from personal use to business use.
Example:
In 2020 you bought a new car and used it for personal purposes. In 2021 you began using it for business purposes. You may not claim the sec. 179 deduction because it was originally used for personal purposes.
However, you can claim regular MACRS depreciation for the business use of the car starting in 2021. Under MACRS depreciation, you deduct part of the cost of the car over several years.
Deduction limited to Tangible Personal Property Purchased for Business Use
Examples:
- A car or truck acquired from an unrelated party
- Computer
- Machinery
- Office equipment
- Furniture
- Off-the-shelf software
Maximum Expensing Deduction Limit for the Following Tax Years:
- 2021: $1,050,000
- 2020: $1,040,000
- 2019: $1,020,000
Annual Expensing Limit Reduced Dollar-for-Dollar for Purchases Exceeding the Following limits:
If purchases of qualified property exceed the following limits in any of the following tax years, the first-year expensing deduction must be reduced dollar-for-dollar by the excess amount:
- 2021: $2,620,000
- 2020: $2,590,000
- 2019: $2,550,000
Example:
For example, if you place machinery in service during 2021 costing $2,700,000, the $1,050,000 deduction limit is reduced by $80,000 to $970,000 ($1,050,000-($2,700,000-$2,620,000)), which is entered on Form 4562 in Part 1
6. Bonus Depreciation:
The bonus depreciation rate for 2021 is 100%. Bonus depreciation is also called a Section 168(k) allowance and a special depreciation allowance.
Maximum deduction in 2021 for heavy trucks, vans, and SUVs weight-rated over 6,000 pounds:
Trucks, vans and SUVs built on a truck chasis that are weight-rated by the manufacturer at more than 6,000 pounds gross vehicle weight (fully loaded) but not more than 14,000 pounds are NOT subject to the annual depreciation ceilings that lighter weight vehicles are subject to, such as passenger cars, light trucks and vans.
First-year expensing is limited to $26,200 rather than the general annual expensing limit ($1,050,000 for 2021).
The $26,200 Section 179 limit does not apply to:
- A vehicle designed to seat more than nine persons behind the driver's seat.
- A vehicle equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible directly from the passenger compartment, or
- A vehicle that has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
Maximum 2021 Depreciation Deduction for Vehicles Weighing 6,000 Pounds or Less (cars, light tucks, or vans):
The ceiling on depreciation for a vehicle placed in service in 2021 is generally $10,200, reduced by personal use. However, if the vehicle is used more than 50% for business in 2021, the first-year dollar limit is increased by the bonus depreciation allowance to $18,200 ($10,200 plus $8,000), reduced by personal use. You can elect not to claim the bonus allowance.
Certain vehicles are exempt from the annual depreciation limits, such as an ambulance, hearse, or combination hearse-ambulance used directly in business, taxi cabs used for transporting persons or property for compensation or hire.
Reminder:
The Tax Cuts and Jobs Act passed in December 2017, removed computers or peripheral equipment from the definition of listed property. This change applied to property placed in service after Dec. 31, 2017.
Expensing Deduction Limitation for Property Acquired in a Trade-in
If you acquire property in a trade-in, the cost eligible for first-year expensing is limited to the cash you paid. Keep in mind, the adjusted basis of the property you traded in is not eligible for first-year expensing even though the basis in the new property includes the adjusted basis of the property you traded in.
Taxable Income Limitation:
The first-year expensing deduction may not exceed the net taxable income from all businesses you actively conduct. Note that wages from a job you or your spouse (if married) earns is considered a business you actively conduct for the purpose of figuring your taxable income limitation.
Example:
- You're a sole proprietor
- Your Schedule C net income is $30,000
- You also have a part-time job and earned W-2 wages of $5,000
- Your spouse has a job and earned W-2 wages of $20,000
The taxable income limitation for the first-year expensing is $55,000 ($30,000 net income from the business plus $25,000 in W-2 wages).
You figure net income from active businesses without regard to the following items:
- The first-year expensing deduction
- The deduction for self-employment tax entered on Form 1040
- Any net operating loss carryback or carryforward
Net loss from all actively conducted businesses:
If you have an overall net loss from all actively conducted businesses you may not claim an expensing deduction for that year.
Net taxable income less than cost of qualifying property:
If overall net taxable income is less than the cost of qualifying property, the first-year expensing deduction is limited to net taxable income. However, the cost that exceeds overall net taxable income may be carried over to the following year and added to the annual expensing allowance for that year.
Example:
In 2021, your spouses wages from her job were $20,000. Your Schedule C net profit from your sole proprietorship was $80,000. In 2021 you purchased and placed in service qualified property costing $108,000. Your maximum deduction for 2021 is $100,000 (equal to your spouse's wages and your Schedule C net profit). You may carry over the remaining $8,000 to 2022 and add it to your first-year-expensing allowance for that year.
Your carryover to 2022 is barred if you did not claim the first-year expensing deduction on your return for the year the property was placed in service. You must complete the expensing section of Form 4562 for 2021 in order to get a carryover to 2022.
Accelerated MACRS Recapture
If you dispose of property you depreciated using MACRS, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the depreciation previously allowed or allowable.
Recapture of Section 179 Expense Deduction on Listed Property
If you used listed property more than 50% for a qualified business use in the year you placed the property in service and use it 50% or less in a later year, you may have to recapture in the later year part of the section 179 expense deduction. Use Form 4797 to figure the recapture amount.
Residential Rental and Non-residential Rental Real Property
There is no recapture for residential rental and nonresidential real property, unless that property is qualified property for which you claimed a special depreciation allowance (discussed earlier). For more information on depreciation recapture, see Pub. 946.
When First-Year Expensing is Not Allowed
First-year expensing is not allowed for the following:
- Buildings
- Structural components of buildings
- Furniture and refrigerators used in operating apartment buildings
- Property held for the production of income
- Property used 50% or less for business
Partial Business Use
If you use your vehicle less than 100% for business you must allocate the deduction according to your business use percentage.