Businesses are allowed to recover the cost of capital expenditures over time according to depreciation schedules. These schedules vary based on the type of equipment.

Recent legislation, allows businesses to recover the costs of capital expenditures made December 31, 2013, faster than the ordinary depreciation schedule would allow by permitting businesses to immediately write off 50% of the cost of depreciable new property, which is called Bonus Depreciation, for use in the United States.

Bonus Depreciation Summary

Bonus Depreciation allowance is equal to 50% of the adjusted cost basis of qualified equipment placed in service by December 31, 2013.

Bonus Depreciation applies to purchases of tangible personal property with a Modified Accelerated Cost Recovery System (“MACRS”) recovery period of 20 years or less.

Some examples of 3, 5, 7, and 15 MACRS equipment is outlined below:

a) Qualifying 3 year property includes rent to own property
b) Qualifying 5 year property includes computer hardware, software, switching equipment, manufacturing production or extracting, solar or geothermal energy equipment used to
generate electricity, & light trucks, etc.
c) Qualifying 7 year property includes office furniture, agricultural equipment
d) Qualifying 15 year property includes leasehold improvements

Some general guidelines are:

  • Equipment must be purchased and placed in service in 2013, with exception of certain equipment which has longer period production lead times that must be placed in service by December 31, 2013.
  • Equipment must be new
  • Bonus Depreciation expires at end of 2013

Section 179 deduction & Bonus depreciation provide the following benefits:

  • Immediate write off equipment and software purchases with a cost up to $500,000 with a $2,000,000 investment limit.
  • 50% first year Bonus depreciation for purchases greater than $500,000 and not capped
  • Standard MACRS depreciation for remaining amounts not covered by the above

 

If you are planning on acquiring new equipment or software and are interested in seeing the potential tax benefit you may receive as a result of the acquisition, please download our calculator. You may find that if you lease the equipment, the tax savings in the first year are actually greater than the first year’s lease payments.

Please click here to download our  Section 179 and Bonus Depreciation Calculator

 

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Disclaimer: This site is intended to provide you with a brief overview of the Section 179 Deduction and Bonus Depreciation that is available through 12/31/13. All tax based decisions should be made solely on your own research that you make independently of this site and consultation with your CPA or tax professional. We are not tax advisors or tax professionals and take no responsibility for any of the actions or decisions that you make based on your review of the contents of this site.

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