Unlock tax savings: master capitalization and depreciation
Taxpayers often want to expense everything immediately, but as tax preparers, we need to know when to say “no.”
Proper capitalization and depreciation deductions can significantly impact a business’s taxable income, leading to optimized tax savings and better financial management.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: Would a new office desk purchased for $270.00 at an auction be capitalized or expensed?
A: You could do either. You can elect to use the de minimis safe harbor election under Reg. §1.263(a)-1(f) to treat assets as supplies if they cost under $2,500 for businesses without applicable financial statements.
Q: If a company won’t have sufficient business income to take the §179 expense deduction, should they take some §179 to get to $0 income, then use bonus depreciation for the rest?
A: Yes, that’s an excellent strategy. Section 179 is used first, followed by bonus depreciation for the balance, and finally, MACRS for the remaining portion not immediately expensed.
Q: Can we take the §179 expense deduction on business vehicles over 6,000 GVWR (deduct some or full cost of the vehicle if 100% business use)?
A: Yes, but it depends on the vehicle. Most SUVs are limited to the annual deduction amount, currently $30,500 (2024). Check Publication 946 for more details.
Q: If a taxpayer claims §179 for an asset, and business use drops below 50%, is there recapture?
A: Yes, a portion of the §179 expense deduction is recaptured as ordinary income in any tax year of the asset’s recovery period when business use fails to exceed 50% (§179(d)(10); Reg. §1.179-1(e)).
To learn more about capitalizing fixed assets and deducting depreciation, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.