Making a large investment in equipment for your processing or storage facility is a big decision. Selecting the company to purchase the equipment from, specifying the brands you prefer and designing your new facility or retrofit application are all important factors to consider. How much thought should you give to how you finance your purchase? Well, if it’s a large investment you may want to consider looking in to the following government tax deductions.
$1,000,000 limitation and cannot create a net loss. Any unused loss is carried forward to offset future taxable income.
- $1,000,000 limit for deduction
- $2,500,000 limit for total property placed in service for tax year of 179 deduction
- Not available to taxpayer to create a loss, can only reduce income to net zero
- Unused deduction suspended to future years to offset future income
- No asset class limitation – can “pick and choose”
- Asset class: 5, 7, 10, 15, 20 year property as defined by the IRS
- For example, equipment generally falls into the 5 or 7 year class while Leasehold Improvements is 15 year property
Section 168(k) Bonus Deprecation
No limit on what can be depreciated and can create a net loss to reduce taxable income to a taxpayer.
- No dollar limit
- Can be used to create a fully deductible net loss to the taxpayer
- *Loss is subject to owner basis limitations
- Asset class limitation
- Must utilize bonus depreciation on all assets under specific class of property (5,7, 10, 15, or 20 year property)
- e. bonus is being used on a piece of equipment under the 5 year class. This means all 5 year property placed into service must utilize bonus.
- No “pick and choose” or piecemeal bonus depreciation for assets under the same property class (5,7, 10, 15, or 20 year property)
- At the moment, bonus DOES NOT apply to 15 year Leasehold Improvement Property
- However, it is expected for Congress to address and pass this provision prior to year-end.