Friday, 27 September 2013 17:45
Depreciation Rules Changing For 2014
Take advantage of current benefits before they expire.
Equipment is probably one of your most significant investments. If you are considering additional investments in equipment, there is a significant advantage to purchasing capital equipment before the end of 2013. The current law allows you to deduct up to $500,000 (subject to limits) of new or used equipment acquired in 2013 (so called Section 179 deduction). In addition, current law allows you to deduct an additional 50% of the remaining cost of new equipment acquired in 2013 (so called Bonus Depreciation). However, for 2014, the Section 179 provision is scheduled to be reduced to $25,000 and the Bonus Depreciation provision is scheduled to expire altogether.
Highlights for Tax Benefits
The allowable Section 179 deduction (for federal tax purposes) is $500,000 on the
cost of new and used equipment purchased through 12/31/2013
Allows a 50% bonus depreciation (for federal tax purposes) of the cost of new
equipment (under certain conditions) through 12/31/2013
Section 179 Deduction
For 2013, companies can expense up to $500,000 as a deduction (for federal tax purposes)
as long as total qualified purchases do not exceed $2.0 million.
Applies to new and used equipment
Can be combined with bonus depreciation
Beyond the $2 million maximum equipment investment threshold, there is a dollar
for dollar phase-out of the Section 179 Deduction
Subject to taxable income limitations
The enhanced bonus depreciation benefit (for federal tax purposes) allows an additional immediate write-off of 50% of the undepreciated balance for capital expenditures as
depreciable property (new equipment only).
Applies to new equipment only that is placed in service in the United States in the
2013 calendar year
Equipment must be depreciable under the Modified Accelerated Cost Recovery
System (MACRS) and have a depreciation recovery period of 20 years or lessHere is an example of the impact of Section 179 and Bonus Depreciation can have:
EQUIPMENT PURCHASES: $ 700,000
First Year Write Off (Section 179) $(500,000)
($500,000 - Maximum Section 179 deduction in 2013)
50% Bonus First Year Depreciation $(100,000)
($700,000 - $500,000 (Sec. 179) = $200,000 x 50%
Normal First Year Depreciation $ (20,000)
(20% of remaining amount)
Total First Year Deduction: $(620,000)
($500,000 + $100,000 + $20,000)
First Year Tax Savings: $ 245,520
($620,000 x 39.6% Federal Tax Rate)
As you can see, these tax provisions can add significant cash flow for your business, but in order to take advantage of this opportunity, the equipment must be purchased and placed in service by the end of 2013.
Published by: Peachin, Schwartz and Weingardt, P.C. Certified Public Accounta
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