You’ve probably never heard of the Section 179 rule. But, many family child care providers can use this rule to deduct larger expenses in one year, rather than having to depreciate them.
As I’ve discussed in a previous article, “What is Depreciation?”, if you buy an item that costs more than $2,500, you must spread the deduction by depreciating it over a number of years. This general rule has several exceptions. One of these is the Section 179 rule.
The Section 179 rule allows you to avoid depreciation by claiming the entire business portion of an expense in one year.
To use the Section 179 rule the business use of the item must be more than 50%. Eligible items include office equipment (computer, printer, copier, scanner, desk, fax), personal property (furniture, appliances, play equipment, etc.), and a vehicle. The maximum expense deduction under the Section 179 rule is $500,000. The item you purchase can be new or used.
You cannot use the Section 179 rule for land improvements (fence, patio, driveway), home improvements (remodeling, new roof, deck, etc.), or the home.
Let’s look at an example. Debe Provider bought an outdoor climber for $3,000 in 2017. She doesn’t have any young children of her own, so the business use of the climber is 100%. Because her business use is above 50% she can deduct the full $3,000 on her 2017 tax return by using the Section 179 rule. Normally, she would depreciate a climber over seven years.