As expected, Obama has signed legislation reinstating tax provisions that could have a direct impact on whether or not you buy new equipment in the remaining weeks of 2014.
The Tax Increase Prevention Act (H.R. 5771) reinstates two provisions that may help contractors press the “buy” button on construction equipment:
The act reinstates the 50 percent bonus depreciation that had expired last year. Only new equipment is eligible, and it must be delivered by Dec. 31. Under these provisions, contractors could depreciate 50 percent of the cost of any purchased equipment in 2014, with the rest depreciated over the remaining useful life of the equipment. Further specifics of what can be depreciated can be found on this IRS site. The bonus depreciation is discretionary and instead of claiming a bonus deprecation, companies may elect to accelerate alternative minimum tax credits.
Expensing levels return to $500,000 with a $2 million phase out. As the website depreciationbonus.org explains, you can expense $500,000 in purchases as long as total purchases don’t exceed $2 million. One big difference between Section 179 and the bonus depreciation is that Section 179 applies to purchases of both new and used equipment; the bonus depreciation only applies to new equipment. In addition, Section 179 can be combined with the depreciation bonus. For example, the website says you can expense the first $500,000 of equipment purchases and take the bonus depreciation on new equipment buys between $500,000 and $2 million.
Contractors are urged to consult their accountants to determine which method, if either, will work best for them.
It’s worth noting, however, that Obama, went on record against a permanent bonus depreciation this past summer, saying that the bonus depreciation was “never intended to be a permanent corporate giveaway,” as reported by ThinkAdvisor website.
Dennis Slater, president of the Association of Equipment Manufacturers called the Congressional action welcome but long overdue. “Equipment manufacturers and their customers shouldn’t have to wait until mid-December to learn what their tax obligations were for the entire preceding year.” The debate over measures such as the bonus deprecation wasn’t an abstraction, but “a matter of real dollars and cents,” Slater says.