Explain fully the difference in bonus depreciation (along with limits) and Section 179 and how these...

Explain fully the difference in bonus depreciation (along with limits) and Section 179 and how these two interrelate.

Expert Solution

Bonus depreciation is an incentive in tax for small and mid sized businesses to take first year deduction from purchase of qualified property along with depreciation. Section 179 is also an incentive in tax for qualified assets purchased and used for business but both are different.

Bonus Depreciation - The purpose m of this depreciation is to spread the cost of the asset over the life of the asset rather than only in its first year. The year, the qualified property is purchased, 100% deduction is allowed in the first year along with other depreciation.

Bonus depreciation and Section 179 - Sometimes, Section 179 deduction is interrelated with bonus depreciation. One major difference is that Section 179 allows business to expense the cost at the time of purchase while depreciation spreads the cost over the life of asset. Business can still benefit from bonus depreciation even if they go over the spending limit for Section 179.

Section 179 - Bonus depreciation is not limited to taxpayer's income but Section 179 is limited to taxpayer's business income. Bonus depreciation is not allowed to carry forward while, Section 179 deduction that is limited due to income limitation is allowed to carry forward in future years.

ekkarill92 answered 2 years ago

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