Buying Equipment In 2018: Tax Advantages & Bonus Depreciation
The Business Journals claims 2018 is the year for U.S. manufacturers to invest in their futures. Why? Well the recent change to the tax system, which our CEO, Richard Spruit, discussed in a previous blog, has something to do with it.
Beginning this year, deduction limits changed for all qualifying equipment purchases.
According to IRS Section 179, the deduction limit for equipment purchases is $1,000,000. If you buy or finance a piece of equipment in 2018, you can deduct the Full Purchase Price (up to $1,000,000) from your gross income.
Marlin Business Service Corp. explains, “The 2018 Section 179 deduction threshold for total amount of equipment that can be purchased is $2,500,000.” This means you can purchase more equipment and still have the benefit of the Section 179 deduction.
Bonus Depreciation in the new year has also change. One hundred percent of new and used equipment is now allowed.
“Under Modified Accelerated Cost Recovery System (MACRS) Bonus Depreciation has increased first-year depreciation deduction to 100% (vs. 50%) of the adjusted gross basis of qualified property. This goes into effect for assets placed in service after September 27, 2017 and before January 1, 2023. Another significant change under the new tax law is the ability to use the bonus depreciation for purchases of new or used property. Under prior law, you could only use bonus depreciation for new property,” says Marlin.
For example, say you bought a new truck scale for $90,000 in 2018. Let’s see what your depreciation and tax savings would look like.
Equipment Cost: $90,000.00
First Year Write-Off ($1,000,000 is the max. Section 179 write-off): $90,000.00
100% Bonus Depreciation (On any remaining value above $1,000,000): $0.00
March 1st Year Depreciation (Depreciation 20% Year 1 – assuming 5 year property HY convention): $0.00
Total 1st Year Depreciation: $90,000.00
Tax Savings Assuming Rate of 21% (Equipment Cost x 21%): $18,900.00
1st Year Net Cost After Tax Savings (Equipment Cost – Tax Savings): $71,100.00
Consider this your time to invest and grow your business! If you have questions about this process, feel free to contact us. If you believe the timing is right for you to invest in equipment this year, check Grand Rapids Metrology’s weighing, metrology and heavy capacity products available.