Software and the Section 179 Deduction
An increasingly popular use of the IRS §179 Deduction is for software.
Any “off-the-shelf” computer software that (a) is not custom designed, and (b) is available to the general public is qualified for the Section 179 Deduction in the year that you put the software into service.
What Software Qualifies …?
For basic eligibility, the software must meet all of the following general specifications:
1. The software must be financed (only specific type leases and loans qualify ), or purchased outright by you.
2. The software must be used in your business for income-producing activity.
3. The software must have a determinable useful life.
4. The software must be expected to last more than one year.
In addition, these three specific stipulations must be met:
1. The software must be readily available for purchase by the general public.
2. The software must be subject to a non-exclusive license.
3. The software must not have been substantially modified.
Basically, the Software Can’t be Custom Code
Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the Section 179 Deduction. This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified.
It includes any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.
In other words, if the core software is standardized, a small amount of customization is OK (but generally websites are not eligible for Section 179).
For more information, please contact Betty Motichek-Bruce!