When does the Section 179 expensing deduction phase out?

The Section 179 expensing deduction is designed to allow businesses to deduct the full price of qualifying equipment and software purchased or financed during the tax year, up to a specified limit. However, this ability to take the deduction begins to phase out once the total cost of qualifying property placed in service exceeds a specific dollar threshold. This threshold is set by the IRS and is subject to annual inflation adjustments.

When qualifying property exceeds this threshold, the amount that can be deducted under Section 179 is reduced on a dollar-for-dollar basis. This limitation ensures that the benefits of the deduction are targeted toward smaller businesses or those investing in smaller amounts of qualifying property, thus incentivizing capital investment without overwhelmingly benefiting larger enterprises that might invest more significantly in property.

The other choices do not accurately reflect the rules governing the Section 179 deduction. The cessation of business operations, timing of the tax year end, or workforce size are not factors that trigger the phase out of the deduction; rather, it is strictly linked to the dollar amount of qualifying property placed in service during the tax year. This specificity is essential for businesses to understand how to strategically manage tax deductions related to asset purchases.