Thanks to our friends at Bank of America Merrill lynch ;
There is significant tax incentive out there to buy equipment this 4th Quarter. The after tax cost of acquiring and financing a new asset is less in the 4th quarter than any other time, due to the timing of the after tax cash flows. The Small Business Jobs Act of 2010 was signed into law on September 27, 2010. Included in this bill is the extension of “Bonus” depreciation and a temporary increase and extension of Section 179 expensing limits.
The Act provides for 50% bonus depreciation on eligible equipment placed in service in 2010, substantially accelerating the normal MACRS depreciation profile, and resulting in increased economic benefits. Most of the asset cost is deducted 4th quarter for this tax year. For example:
Equipment Cost | Standard 5-yr MACRS | 50% Bonus Depreciation Plus Standard Depreciation on Balance |
$1,000,000 | $200,000 | $600,000 (50% Bonus Depreciation of $500,000 + normal 1st year 5-yr MACRS of $100,000 on remaining balance) |
In lieu of depreciation, if you are a small business taxpayer you may qualify to expense the cost of qualified capital assets (property) your company purchases in the year the assets are placed in service, within certain limits. For 2010 and 2011, the bill temporarily increases the first-year write-off for business equipment from $250,000 to $500,000. The eligible expenditures cap that triggers a phase-out of the incentive has been raised from $800,000 to $2 million, and the bill expands Section 179 to cover improvements to some real property.
Section 179 Legislation | First-year write-off | Incentive phase-out cap |
SBJA (2010-2011) | $500,000 | $2,000,000 |
ARRA (2009) | $250,000 | $800,000 |
Bank of America Merrill Lynch
Global Commercial Banking
WA1-501-36-12
800 Fifth Avenue, 36th Fl
Seattle, Wa 98104-3176
Phone 206-358-3519
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