If you’re ready to purchase machinery and equipment for your
business, you may be able to benefit from recent tax law changes
that allow larger than usual depreciation write-offs. Thanks to the
Jobs and Growth Tax Relief Reconciliation Act of 2003, it’s
possible to expense up to $100,000 of the cost of certain assets.
An increased bonus deduction of 50 percent of the cost of assets
purchased after May 5, 2003 is also available.
If you’re ready to purchase machinery and equipment for your business, you may be able to benefit from recent tax law changes that allow larger than usual depreciation write-offs. Thanks to the Jobs and Growth Tax Relief Reconciliation Act of 2003, it’s possible to expense up to $100,000 of the cost of certain assets. An increased bonus deduction of 50 percent of the cost of assets purchased after May 5, 2003 is also available.
Other good news:
– The revised rules apply to all types of businesses.
– Both deductions are allowed in the same year.
– While you can’t expense more than you paid, in some instances you can claim immediate expensing and bonus depreciation on the remaining basis in the same asset.
– Off-the-shelf software qualifies for the expensing election.
– The deduction has been increased for light vehicles with more than 50 percent business usage.
The changes are subject to restrictions. Here are four:
– Total cost matters. The opportunity to elect immediate expensing begins to disappear when you purchase more than $400,000 of assets during the year.
– Net income is important. The 50 percent bonus deduction can be claimed no matter your income. But the immediate expensing option is generally limited to taxable income from your trade or business.
– New or used makes a difference. Both new and used equipment are eligible for immediate expensing. Assets must be new to be eligible for bonus depreciation.
Not all assets qualify. Buildings, rental property and assets that are depreciated over 20 years or more generally do not qualify for immediate expensing or bonus depreciation. However, if you purchase longer-lived real property, you may be able to identify specific improvements that could qualify.
Doug Herring is a CPA with the accounting and business consulting firm of Bianchi, Lorincz & Company located in downtown Hollister.
