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1208 Election to Expense
Certain Depreciable Business Assets
An expense deduction is provided for taxpayers (other than estates,
trusts or certain non-corporate lessors) who elect to treat the
cost of qualifying property, called Sec. 179 property, as an expense
rather than a capital expenditure. The election, which is made on
Form 4562, is to be attached to the taxpayers original return
(including a late files original return) or on an amended return
filed by the due date of the original return (including extensions)
for the year the property is places in service and may not be revoked
without IRS consent [94FED, 12, 120]. Employees may make such election
on Form 2106.
For 2006, the maximum Code Sec. 179 deduction is $108,000.
The $108,000 ceiling is reduced by the excess cost of qualified
property placed in service during the tax year over $430,000.
The total cost of property that may be expensed for any tax
year cannot exceed the total amount of taxable income (determined
after application of the investment limitation) derived from
the active Conduct of any trade or business during the tax
year. Costs disallowed under this rule may be carried forward
an unlimited number of years subject to the ceiling amount
for each year. To qualify as Code Sec. 179 property, the property
must be Code Sec. 1245 property depreciable under Code Sec.
168 and property that is acquired by purchase for use in the
active conduct of a trade or business.
IRS Section 179
Under IRS Section 179, equipment purchases, up to the amount shown
below, can be expensed (deducted from taxable income) if installed
by December 31st. Finance leases qualify for this deduction in their
year of inception. Any excess above the expensed amount can be depreciated
over 5 to 7 years depending on the
Equipment type. The maximum amount of asset cost that can be expensed
by year is:
- $108,000 for 2006
- $108,000 for 2007 and 2008 + inflation index
For example, if you purchase or lease a piece of equipment
for $109,000 and install it in 2006, you are eligible to take
a $108,000 tax deduction in the respective year. The remaining
$1,000 can be depreciated over the life of the asset.
Learn more about the Types
of Leases or Apply
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Special Note: LRI provides this information
only to make you aware of the possible benefits of leasing. For
advice on your specific situation, please see your accountant or
tax advisor.
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