With the stroke of a pen by President Obama, a temporary tax break for small business capital investments has become permanent.
Known as Section 179 deduction, in reference to the section of the United States Internal Revenue Code, this tax provision allows qualifying capital expenditures to be written off, or expensed, immediately on a business’s tax return instead of being depreciated over a number of years.
Section 179 used to be just a limited tax break, with an annual cap of $25,000. During the 2000’s, Congress temporarily raised the limit several times, up to $500,000 in 2010. However, each increase was temporary, requiring annual reauthorization to prevent the limit from returning to $25,000. With Congress passing the Protecting Americans from Tax Hikes (PATH) Act of 2015 on December 18, the cap has been permanently increased to $500,000, which will also be subject to inflation adjustments in the future.
The maximum $500,000 deduction starts to phase out dollar-for-dollar when a business spends more than $2 million in qualifying capital expenditures a year, making small and midsize businesses the primary beneficiaries of this tax incentive.