If you’ve been following national news since mid-December, you’re probably all-to-familiar with the new tax cuts the current Administration championed, and Congress ultimately signed into law. Lawmakers on both sides of the aisle were speculating on the economic impact at the micro and macro levels, and as the dust settles, a few areas of significant impact have become clear, with Section 179 Depreciation among the top benefits for businesses.
What is Section 179?
If you’re unfamiliar with the deduction, it’s essentially a stimulus package to encourage U.S. businesses to invest in new equipment purchases by allowing a purchase price deduction of up to a specific dollar figure, and a percentage of the purchase price in the first year. This stimulus has been modified a few times to increase the purchase price cap and first-year deduction, with the most recent update going into effect January 1, 2018.
What are the changes?
Limits. The deduction limit was raised from $500,000 to $1,000,000, and the spending cap (maximum purchase price before deduction is reduced) to $2,500,000. In addition to the direct deduction limits, the program included a bonus depreciation for the balance of the purchase price beyond the deduction limit, which was scheduled to drop from 50% to 40% deduction. The new Tax Cuts and Jobs Act raised this bonus deduction to 100% in the first year.
Is Used Equipment Included?
While the standard deduction was applied to both new and used equipment, bonus depreciation was limited to new equipment purchases only, however under the new legislation, used equipment purchases financed in that year receive the full bonus depreciation benefits as well.
How Does It Work?
Assuming a 35% tax bracket, the purchase of a $250,000 piece of equipment would see a tax savings of $87,500, bringing the cost after savings down to $162,500. To gain a clearer picture of how this will impact your individual tax situation, contact your tax accountant.
If you’re ready to improve or expand your manufacturing capabilities, contact an ENGS representative to learn how we can help fund your next equipment purchase.