Two important tax provisions were enacted last year that lower the cost of capital equipment, but buyers must act fast. These provisions expire soon.
The tax relief package enacted late last year provides 100% bonus depreciation for capital investments placed in service after September 8, 2010, through December 31, 2011. Bonus depreciation was first enacted following the September 11, 2001, terrorist attacks at a 30% rate. Since then, it has been extended or re-enacted five times as a means to encourage businesses to invest in their plants and equipment and thereby stimulate the economy, but never has the bonus been 100%.
The most current provision allows companies to write off 100% of their new equipment purchases that are up and running by the end of this year with no cap on the amount that can be written off. In 2012, the bonus drops to 50% of new equipment purchases, still a good incentive to retool and upgrade your manufacturing operations. In 2013, bonus depreciation disappears.
In addition to 100% bonus depreciation, Section 179 expensing was temporarily increased last year to $500,000. Also enacted to stimulate economic growth, this provision has been around since the first Reagan administration. By capping the investment amount, Sec. 179 was meant to support small businesses and is often referred to as “small business” expensing. It also differs from bonus depreciation because it applies to both new and used equipment purchases. It can be taken with bonus depreciation.
In 2011, under Sec. 179, the amount of new and used qualifying equipment that can be expensed is $500,000 up to $2 million in purchases. After $2 million, the benefit is reduced dollar for dollar. In 2012, the expensing amount drops to $125,000 up to $500,000 in purchases and to $25,000 up to $125,000 in 2013.
Read the Fact Sheet created by the Association of Manufacturing Technology on 2010-2012 Bonus Depreciation by clicking this link.