IRS Section 179 – Equipment
Section 179 allows businesses to expense (i.e. deduct from their gross income currently as opposed to taking depreciation deductions over time), up to a certain limit, the buy price of qualifying equipment purchased or financed during that tax year, Section179.org explains. The site also lists materials that would generally qualify for the deduction, such as:
> character attached to the business but not part of the structure
> Machines purchased for business use
> Tangible personal character used in business
> Business vehicles with a gross weight in excess of 6,000 lbs
> Computers and software
> Office furniture/equipment
Under the Economic Stimulus Act, the equipment investment limit is increased from $510,000 to $800,000 – meaning all businesses that buy or finance less than $800,000 in business equipment should qualify for the Section 179 deduction. Also, the $128,000 expensing limit is increased to $250,000. (Source: Trade and Industry Development)
Businesses choosing to lease instead of buy equipment could take advantage of the Section 179 deduction by leveraging a non-tax capital lease and writing off $250,000 by the Section 179 deduction. “The amount you save in taxes can truly go beyond the payments,” Section179.org adds.
To take advantage of these increases, companies must act before the year ends as these figures will revert to their past levels.
As for the depreciation bonus, the stimulus program allows companies to depreciate 50 percent of the equipment’s cost in the first year, plus the remaining basis of the equipment that would be depreciable. Companies can receive a higher tax break this year and less the years following, which method future tax bills would be higher.
“You’re nevertheless only eligible to depreciate 100 percent of the cost of the equipment, so in the other years you’ll likely be able to depreciate less because you’ve taken this depreciation upfront,” Christian Klein, vice president of government affairs and Washington counsel for Associated Equipment Distributors, explains to Modern Metals. “It’s not an additional 50 percent of the cost of the equipment that depreciates, so you can’t depreciate 150 percent of the cost. You’re nevertheless only eligible to depreciate 100 percent, you can just do more of it more quickly in the first year. And that helps if you’re having a good year this year. It can reduce your 2008 tax liability.”
The purpose of these increases and bonus first-year depreciation deductions is to get people off the fence on whether or not to buy new equipment and invest in their companies.
“The tax incentives might encourage companies to go ahead with projects they’ve sidelined or to speed up time lines on existing projects to get them in under the deadline,” Hal Vandiver, executive vice president of the Material Handling Industry of America, tells Modern Materials Handling.
“If you want to try to combine the two, the way you would do that is buy up to $800,000 worth of stuff, take the Section 179 expensing for the first $250,000 and use the depreciation bonus for the remaining $550,000,” Klein adds.
To calculate your possible Section 179 tax savings, visit http://dimensionfunding.com/equipment_lease_calculator.html.