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 taxpayer’s 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.

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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.