To determine whether you can deduct the entire acquisition cost of a new computer purchased for your business or if you must use depreciation, we need to consider the relevant provisions of the Internal Revenue Code and IRS publications.
- Section 179 Deduction:
- Under Section 179(a), a taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to a capital account. This means you can deduct the entire acquisition cost of the computer in the year it is placed in service, provided it qualifies as section 179 property.
- Section 179(d)(1) defines section 179 property to include tangible property to which section 168 applies and computer software. The computer must be acquired by purchase for use in the active conduct of a trade or business.
- To elect the section 179 deduction, you must complete Part I of Form 4562.
- Eligibility and Limitations:
- The computer must be used more than 50% for business purposes to qualify for the section 179 deduction.
- For taxable years beginning in 2022, the maximum amount you can expense under section 179 is $1,080,000, reduced by the amount by which the cost of section 179 property placed in service during the taxable year exceeds $2,700,000.
- Depreciation:
- If you do not elect the section 179 deduction, or if the computer does not qualify, you must use depreciation to recover the cost over time.
- The computer can be depreciated using the Modified Accelerated Cost Recovery System (MACRS) over a 5-year recovery period.
- If the computer is used 50% or less for business, you must use the Alternative Depreciation System (ADS) under MACRS.
- Special Depreciation Allowance:
- You may also be eligible for a special depreciation allowance, which allows you to recover part of the cost of qualified property placed in service during the tax year. The special depreciation allowance is 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.
In summary, you can deduct the entire acquisition cost of a new computer purchased for your business in the year it is placed in service if you elect the section 179 deduction and the computer qualifies as section 179 property. If you do not elect the section 179 deduction or the computer does not qualify, you must use depreciation to recover the cost over a 5-year period.
Sources:
§ 179. Election to expense certain depreciable business assets
Publication 946 (2023)
Publication 583 (1/2021)
Publication 911
Publication 535 (2022)
