If in December 2010 you purchased and placed in service a new piece of capital equipment to use in your business – say for example a farmer buys a new tractor and placed it in service in his farming business. The tractor cost $300,000. The farmer can expense the entire cost of the tractor even if he has no taxable income.
Note: You cannot claim a deduction on your 2010 tax return using §179 if you have no taxable income. However, you can use bonus depreciation. Under the 2010 Tax Relief Act, qualified property purchased after September 8, 2010, and before January 1, 2012, and placed in service before January 1, 2012 (January 1, 2013, for certain aircraft and certain property having longer production periods), is eligible for 100% bonus depreciation [§168(k)(5)]. There is no taxable income limitation for bonus depreciation. Thus, you can deduct the entire cost of the tractor using bonus depreciation. Bonus depreciation can also create a net operating loss (NOL); whereas, §179 cannot.