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Section 179 of the IRS Code
Business Equipment
Business owners who acquire equipment including machinery, computers, and other tangible goods usually prefer a substantial deduction in a single tax year rather than a little at a time over a number of years. This accelerated deduction is known by its section in the tax code: a Section 179 deduction. The 2008 law increases the amount of qualified property that a business can expense under Section 179 to $250,000. This incentive is for equipment placed in service between December 31, 2007 and January 1, 2009 and is designed for small companies so the deduction phases out when a business purchases more than $800,000 in one year. (Companies cannot write off more than their taxable income).
Bonus Depreciation 2008
The law passed in 2008 also created a bonus depreciation of 50% for qualifying assets. This bonus is in addition to regular first-year depreciation.
Benefits of a Non-Tax/Capital Lease
The benefit of a Non-Tax/Capital Lease is that it can take advantage of Section 179: expense up to $250,000 if the equipment is put in use in 2008. In addition, you may depreciate any excess on the depreciation schedule for that asset. Examples of Non-Tax/Capital Leases include a $1.00 Buyout, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT) Lease.
Equipment Cost Example: $300,000
Assume you finance $300,000 worth of business equipment, put it to use in 2008, and take advantage of Section 179. Your tax savings could be significant:
1st Year Write Off:
($250,000 is the maximum Section 179 write-off in 2008)
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$250,000 |
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50% Bonus Depreciation
(On remaining value: $300,000 - $250,000 = $50,000; $50,000 x 50% = $25,000)
| $25,000 |
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Normal 1st Year Depreciation:
(Depreciation calculated at 5 years = 20%; $25,000 x 20% = $5,000)
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$5,000 |
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Total 1st Year Deduction:
($250,000 + $25,000 + $5,000 = $280,000)
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$280,000 |
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Tax Savings Assuming Rate of 35%:
($280,000 x .35 = $98,000)
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$98,000 |
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1st Year Net Cost after Tax Savings:
($300,000 - $98,000 = $202,000)
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$202,000 |
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This sample calculation shows how taking advantage of Section 179 can significantly lower the true cost of equipment ownership from $300,000 to $202,000. For the specific impact to your company, please contact Regal Finance.
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