As of August 4, 2004, the Internal Revenue Service (IRS) has approved temporary regulations regarding taxpayers' election to expense the cost of property subject to section 179 of the Internal Revenue Code. The regulations make it easier for small business owners to expense property and revoke expensing elections on filed tax returns.

Before the Jobs and Growth Tax Relief Reconciliation Act of 2003 ("JGTRRA"), taxpayers with small current year investments could choose to deduct up to $25,000 of the cost of section 179 property rather than depreciating those expenses. Section 179 property has been defined as depreciable, tangible, personal property purchased for use in a trade or business. Under the temporary regulations, this definition has been expanded to include computer software and the amount that may be expensed has increased to up to $100,000 during 2003, 2004, and 2005. During this time, the amounts will be indexed annually for inflation.

Elections made prior to the JGTRRA were made on a taxpayer's federal tax return for the applicable taxable year. Once these were filed, the election could only be revoked with the Commissioner's consent. The temporary regulations allow taxpayers to revoke elections on amended Federal tax returns without the consent of the Commissioner during the years 2003 through 2005. This will make the process of making and revoking elections more efficient for taxpayers, providing small business owners with flexibility, helping them determine whether or not the elections are to their advantages, and allowing them to take full advantage of exemptions and deductions. This is important, as small business owners are often unaware of the advantages or disadvantages of section 179 expensing.

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Last updated 8-Nov-2004.