Congress approved a $350 billion tax cut package last week that could benefit construction contractors by allowing firms buying new equipment to immediately deduct a “bonus depreciation” of 50 percent of the cost from their taxes. A reduction in dividend and capital gains taxes could also assist contractors.
President Bush said he would sign the legislation this week.
The House approved the tax package Friday morning by a vote of 231-220. The Senate then passed it by a 51-50 vote in which Vice President Cheney cast the final vote.
Firms buying new equipment between May 5, 2003, and January 1, 2005, can immediately deduct a “bonus depreciation” of 50 percent of the cost from their taxes. This is an increase from the 30 percent bonus depreciation enacted last year for equipment placed in service between September 11, 2001, and September 10, 2004. In addition, businesses that buy less than $400,000 of equipment in 2003 can expense $100,000 of it before using the bonus depreciation amount. Currently businesses that purchase less than $200,000 of equipment in one year can expense $25,000.
Another change that could affect contractors is a reduction of taxes on both dividends and capital gains to a maximum of 15 percent. Although this reduction will expire in 2008, it will enable some construction firms currently taxed as S corporations or partnerships to be taxed as more flexible C corporations, allowing them to take advantage of the 15-percent rate.
Because the tax cut package is expected to give 25 million taxpayers approximately $14 billion in rebate checks late this summer, economists expect the extra money will fuel construction in the private sector.
The tax cuts will give state governments $6 billion and local governments $4 billion. Ken Simonson, chief economist for the Associated General Contractors of America, said this money could be spent on highways, schools or other construction.