New IRS Regulations Restrict Section 179 First Year Expensing in 2012…
February 07, 2012
Section179, the election to expense certain depreciable business assets, is a provision meant to encourage investment and provide tax relief for smaller businesses. For 2012, up to $139,000 of equipment and other fixed assets may be purchased and expensed under Section 179. If total qualifying investments exceed $560,000 in 2012, the expensing threshold is phased out. This is a reduction from the 2011 threshold of up to $500,000 for equipment purchases.
When two or more corporations are related through more than 50 percent common ownership (affiliated corporations), Section 179 benefits and limitations must be apportioned among the related corporations. Prior to the issuance of final regulations, effective April 10, 2011, S corporations were precluded from the aforementioned requirements and were able to benefit from taking the maximum amounts of Section 179 in each company as long as the Section 179 limits were met at each individual company.
Under final regulations, an S corporation is now included in a controlled group using the same tests that apply to C corporations. Because of this, the Section 179 limitations now apply to affiliated C corporations and S corporations. Accordingly, under the final regulations, all affiliated corporations (including S Corps.) must be combined in determining Section 179 eligibility and limitations. This new rule is effective for tax years beginning after April 10, 2011. Therefore, this will not apply to taxpayers with December 31, 2011 year ends, but should be taken into consideration for fiscal year taxpayers and in 2012 planning.