Capital Expensing Deduction Limit Increased to $125,000
Almost every new tax law over the past few years has tweaked small business expensing under Code Sec. 179 and the 2007 Small Business Tax Act is no exception. The dollar and investment limitations are increased.
Impact: Because of the extension of enhanced Section 179 expensing, taxpayers now have more certainty. The significantly more generous tax break is not only extended through 2010, it is also indexed for inflation. If Congress had not acted, the dollar limitation would have plummeted to $25,000 and the investment limitation to $200,000 after 2009. But since the deduction is completely phased out under the new levels for qualifying purchases above $625,000 the deduction continues to be confined generally to the relatively small business.
Dollar Limitation- Under the new law, the base $100,000 limit ($112,000 as indexed for inflation for 2007) is increased to $125,000 for tax years beginning in 2007 through 2010.
Investment Limitation- The maximum deduction is phased out by the amount by which all qualifying property placed in service during the tax year exceeds the investment limitation. The investment limitation for property placed in service tax years beginning in 2007 was formerly $450,000, as indexed for inflation. The new law retroactively raises the investment limitation to $500,000 for tax years beginning in 2007 through 2010. The $500,000 amount is indexed for inflation in tax years beginning after 2007 and before 2011.
Caution: The deduction is disallowed if the taxpayer did not have taxable income in the year in which the property is placed in service. However, the amount of the deduction disallowed for this reason maybe carried forward to a non-loss year.
Caution: The deduction is not available to estates, trusts, and certain noncorporate lessors.
