Section 179 Deductions

I just bought a book about tax deductions for landlords, which I really like. Most of the topics in there I already knew about, such as depreciation, mortgage interest, home office, real estate professional exemption, etc., and I am just clarifying the details on how it all works. But I came across one item that I've never even heard of -- Section 179 Expensing.

After going on about depreciation, the author then brings up Section 179, and states "Under Section 179, business owners can deduct the entire cost of long-term personal property that they use in their business, rather than having to depreciate the cost over several years. This is called first-year expensing or Section 179 expensing."

So I can buy a new car for my business, and deduct 100% of the cost of it in the year of purchase! I'm very surprised that I never heard of this before.

Here are the rules:

• Personal property used in rental property, such as appliances, carpets, and drapes, is excluded.
  
• You can't buy the deductible property from a relative or from an entity that you control.
  
• You have to use the property more than 50% of the time for business purposes. (If you use the property less than 100% of the time for business purposes, then you reduce the amount of your deduction by the percentage of personal use.)
  
• The maximum amount of expenses that you can deduct are currently $125,000 per year. But they're scheduled to go down to $25,000 in 2011.
  
• If you purchase more than $500,000 worth of Section 179 deductible items in a year, then you start to lose the deduction. That limit is scheduled to go down to $200,000 in 2011.
  
• You can't use these deductions to deduct more than you make, in profit plus salary. So you can't make your taxable income go below zero and create a loss.
  
• When you deduct the cost of an asset, you must continue to use it for business use for the length of time that you would have had to depreciate it. So, since a car would be depreciated over 5 years, you would have to keep using that car for business use for 5 years. Otherwise you will have to "recapture" the savings.
  

Pretty cool stuff!