Will Section 179 be voted on this week in the Tax Extenders Bill HR5771?

By December 11, 2014 BlogNo Comments
Section 179 HR5771

The Tax Extenders Bill which includes Section 179 and allows for equipment/property to depreciated in 2014,  is expected to be voted on by Congress at any time. Seems there is far more important items on the agenda than a bill that could help the 75% of small businesses that help employee 75% of the people in this country. Sales are slow while buyers and sellers wait to see if this will be voted on to increase Section 179 to it’s limit of $500,000, for the much needed tax breaks for everyone from farmers to IT companies. AG Web news which is following this daily for farmers, dairy and other food processors is lobbying the Senators hard to pass the bill. All expectations is it will pass and the President will vote yes. Yet time is running out so perhaps you could pick up your phone and call your Senator and demand they vote now and they vote yet to spur the economy and help us local businesses grow by securing equipment and property that will help us expand to earn more income.

For more information on Section 179 or how it applies with leasing or loans please contact phewett@professionalfundingcompany.com

An article by Joe Kristan sums up the current state the Tax Extenders bill which includes Section 179. He points out it is not enough just to buy equipment you must put in service according  to the IRS. So don’t wait till Dec 31 to buy.

Tax Roundup, 12/10/14: Extender bill lives, permanent charitable extender bill doesn’t. And: don’t just buy it; install it!

December 10th, 2014 by Joe Kristan

Whither the extender bill? HR 5771, the bill to extend retroactively through the end of this month the 55 or so tax breaks that expired at the end of 2013, has been “placed on the Senate Legislative Calendar.” That means it appears to be proceeding to a vote, though I find nothing on when that will happen. Tax Analysts reports that outgoing Senate Majority Leader Reid says he will take up the extender bill ” after finishing work on a defense authorization bill and a government funding measure.” Meanwhile, the President has threatened to veto a separate attempt to permanently extend three charitable breaks in the extender bill, including the break for IRA contributions. While that’s bad for those breaks, it implies that the White House will not oppose HR 5771’s one-year extension.   Because it looks as though the “extender” bill will clear the Senate, taxpayers looking to add fixed assets have extra incentive to get it done this year. The bill extends through 2014 — and only through 2014 — the $500,000 limit on Section 179 deductions and 50% bonus depreciation. These breaks allow taxpayers to deduct over half (bonus depreciation) or all (Section 179) of the cost of fixed assets that are otherwise capitalized, with their deductions spread over 3 to 20 years. Taxpayers should remember that it’s not enough to order or pay for a new asset by the end of 2014 to qualify for these breaks. The asset has to be “placed in service” by year end. A Tax Court case from last December drives home the point, where a taxpayer lost an $11 million bonus depreciation deduction in 2003 because an asset bought at year-end wasn’t “placed in service” on time.  Judge Holmes takes up the story:

On December 30, 2003, an insurance salesman named Michael Brown1 took ownership of a $22 million plane in Portland, Oregon. He flew from there to Seattle to Chicago — he says for business meetings — and then back to Portland. Brown says these flights put the plane in service in 2003, and entitle him to a giant bonus-depreciation allowance. But a few days later he had the plane flown to a plant in Illinois where it underwent additional modifications that were completed about a month later.

The IRS argued that the need for modifications meant the airplane wasn’t “placed in service” before year end. The taxpayer argued that the airplane was “fully functional” as purchased, and therefore was “placed in service” when acquired and used for its first flight on December 30, 2003. The court agreed with the IRS:

While acknowledging in his briefs that those modifications made the Challenger “more valuable to him” and allowed him to “more comfortably conduct business” as a passenger, he says they have “nothing to do with the Challenger’s assigned function of transporting him for his business.” The problem is that this posttrial framing just doesn’t square with the trial testimony, in which Brown testified that those two modifications were “needed” and “required”. We therefore find that the Challenger simply was not available for its intended use on a regular basis until those modifications were installed in 2004. Brown thus didn’t place the Challenger in service in 2003 and can’t take bonus depreciation on it that year.

A new asset doesn’t actually have to be used during the year to be “placed in service,” but it has to be ready to go. A new machine should be on the floor and hooked up, not just in a crate on the dock, or in a trailer on the way in, if you want to depreciate it. If the new asset is a vehicle, you need to take delivery to get the deduction. If the asset is a farm building, it needs to be assembled and in place, not in boxes on the ground. Cite: Brown, T.C. Memo 2013-275