We are considering buying a new piece of equipment costing about $200,000. The salesman points out that we can get a code 179 tax treatment if we buy it this year and deduct it all this year instead of spreading the depreciation of 5 years.

This would be true except the 179 ‘election’ (choosing to depreciate it in one year instead of 5) is limited to $250,000 of capital purchases and we have certainly passed that mark, and the 179 benefit is forfeited if you spend more than $800,000 on capital equipment in a single year.

So if you have already bought $250,000 worth of equipment there is no tax advantage in buying more, and if you have bought just under $800,000 worth it could actually be a distinct DISASDVATAGE to buy this piece of equipment because it would push you over the threshold and COST you a $250,000 deduction in the current year.

Plus this kind of law requires you to keep multiple depreciation schedules since how a piece of equipment is depreciated depends on when it was bought and must account for special tax credits that are specifically targeted. (There are special tax credits for equipment purchased and used to recycle.)

Tax codes that target small business or encourage capital investment are often written so poorly that they have the opposite effect.

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