Depreciation and the Section 179 Deduction

Veterinarians don’t need to learn the Internal Revenue Code by section number, but it pays to remember at least one: IRC179, perhaps the best small business tax break of all. IRC179 allows, but doesn’t require, a business owner or C corporation to deduct the cost of business assets purchased during the year and “placed in service” as current expenses. This produces an immediate write-off of capital assets. The maximum section 179 deduction you can elect for qualified property placed in service in 2004 is $102,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $410,000.

The 2003 Tax Act increases the special depreciation allowance from 30% to 50% for certain qualifying property. To qualify for the 50% special depreciation allowance property must be acquired after May 5, 2003, and placed in service prior to January 1, 2005. The 30% rate still applies to qualifying property acquired after September 10, 2001 and prior to May 6, 2003. To be qualifying property, the original use of the property must begin with the taxpayer after September 10, 2001, for the 30% rate and after May 5, 2003, for the 50% rate. “Original use” means the first use to which the property is placed, whether or not by the taxpayer. When the special depreciation allowance is claimed, the adjusted basis of the qualified property is then reduced by the allowance before figuring the regular depreciation deduction for the first year and all subsequent tax years.

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