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.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.