Equipment: Sec. 179 or Depreciation?

If you purchase equipment or furniture to use in your business, you generally capitalize their cost on Form 4562, and claim depreciation over a period determined under current tax laws. The recovery period ranges from three to 39 years, depending on the category of asset.

For some types of equipment, you can take advantage of the option to use Section 179, which allows you to "expense" up to $100,000 of most business equipment placed in service in 2003.

Note that, if you sell equipment that you have depreciated, the depreciation claimed reduces your "tax basis" and could cause a taxable gain, even if you sold the item for less than you originally paid for it. Also, if you claim Sec. 179 expensing for an asset, and fail to use it for business at least its "class life" (as defined by the IRS), you may have to recapture part of the original deduction as business income when the business usage ends or lessens.

See Form 4562 and IRS Publication 946 for more information and limitations.

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