NEVER A BETTER TIME TO

PURCHASE EQUIPMENT

Deduction for capital equipment nearly doubles to $250,000

On February 13, 2008, President Bush signed into law the “Recovery Rebates and Economic Stimulus for the American People Act of 2008.” This act provides business growth incentives by increasing Section 179 expensing and bringing back bonus depreciation.

What This Means for You

• Increased Section 179 Expensing. Prior to the Act, small businesses could expense up to $128,000 of the cost of new and used equipment placed in service during that year. The Act increases the maximum expense amount to $250,000.

• Return of Bonus Depreciation. The Act brings back the special rules of bonus depreciation by permitting a bonus first-year depreciation deduction equal to 50 percent of the cost of the new property placed in service during 2008.
   

How This Could Work for You

The following example illustrates how current tax rules regarding depreciation can benefit those making capital equipment purchases in 2008:

Example:

A company purchases a $400,000 machine from Stopol. The company purchased no other capital equipment during 2008, so it may deduct $250,000 under Section 179. The remaining $150,000 is then depreciated, generating an estimated additional deduction of $21,500. The sum of these two deductions is then subtracted from the cost of the equipment, resulting in a total first-year deduction of $271,500 or 67.9 percent of the $400,000 investment. This deduction equals a real cash savings of $95,025, which means the customer essentially spent $304,975 on the machine.

To find out how much you can save, please use this
Tax Savings Calculator
(click here)
 

Snapshot View

Cost of Equipment                                                                   $400,000.00

Section 179 Expense                                                               $250,000.00

First Year Depreciation                                                             $21,500.00

Total First-year Deduction                                                      $271,500.00
 

Real Cash Savings on your Equipment Purchase                 $95,025.00
(assuming a 35% tax bracket)

Cost of equipment after tax savings                                     $304,975.00
 

This example presumes that the mid-quarter convention does not apply.

Please note that your annual deduction cannot exceed your aggregate net taxable income for 2008.