As a single member PLLC, what are limits on deduction versus depreciation for technical computer hardware and software? Our company is based in Raleigh, North Carolina.

ANSWER

The BIDaWIZ Team's Answer:

Please note that computer hardware and off-the-shelf software can be deducted immediately when they are put into service. However, if the computer software is custom and not off-the-shelf (available to the general public), that component would not be eligible for the Section 179 election. Rather, custom computer software would be depreciated utilizing the straight line method over 36 months.

Separately, please note that in North Carolina, the Section 179 deduction limit is $25,000 and not the $500,000 federal limit. As such, if the amount of the deduction exceeds $25,000, you would need to make an adjustment on your North Carolina State Tax Return. Specifically, you would add-back the deduction on federal return less the North Carolina deduction limit multiplied by 85%. This would be a factor to consider if the deduction exceeds $25,000 as the Section 179 deduction on your federal return can negatively impact your state tax return. This is referenced in the North Carolina state notice here.

References: IRC Section 179
State: North Carolina