We would like to remind our customers that Section 179 of the United States Internal Revenue Code (26 U.S.C. § 179) has been restored to $500,000 for 2017. This means businesses that purchase up to $2 million in qualifying equipment can deduct up to $500,000 from their 2017 taxes. To qualify the equipment must be:
- Installed and placed in service during the same tax year
- More than 50% of the use of the equipment is for the business
In addition, a bonus depreciation is extended through 2019 for all businesses who have purchased over $2 million in equipment. These businesses will be able to depreciate 50% of the cost of the equipment they purchase and put into production during the years 2015-2017. This bonus depreciation will reduce to 40% in 2018 and to 30% in 2019.
How does all this work? Our accountants have provided us with the following examples to help explain it:
When a company buys equipment, whether by a cash purchase or by financing it, the company typically spreads the expense over several years through depreciation. For example, if a company buys a machine for $100,000, the company can expense about $20,000 per year through depreciation for 5 years. Section 179 allows that company to expense the entire $100,000 during the current tax year if there is sufficient income to offset the expense, thereby accelerating the tax savings.
Section 179 Example
- Cost of Equipment after all Bancroft Discounts: $150,000.00
- Section 179 Deduction: $150,000.00
- Total First Year Deduction: $150,000.00
- 35% Savings on Equipment Purchase: $52,500.00
- Lowered Cost of Equipment After Tax Savings: $97,500.00