It is time to make that purchase! Taking advantage of the new depreciation allowances under Section 179.

 POWERFUL TAX INCENTIVES FOR EQUIPMENT PURCHASES EXTENDED

SECTION 179 “SMALL BUSINESS”

EXPENSING THROUGH 2011

BONUS DEPRECIATION THROUGH 2010

The Small Business Jobs Act has been enacted into law. In a major victory for manufacturers, the new law expands Section 179 expensing for small business new or used equipment purchases ordered and placed in service through 2011. It also extends 50% bonus depreciation for the 2010 tax year, which applies to new equipment only.

                       

The boost to $500,000 in Section 179 expensing is extended for new and used equipment purchases ordered and placed in service in the 2010 and 2011 tax years. Moreover, the cap on how much equipment can be purchased to fully enjoy the write-off increases to $2 million (after which the amount that can be deducted phases out dollar for dollar).

50% Bonus Depreciation on new equipment purchases has been extended for the 2010 tax year.

Here’s how the new provisions work for you:

Let’s assume that the X Manufacturing Co.* retools their facility with new and used equipment totaling $800,000. Under the new Section 179 extensions, X Manufacturing can write off 68% of the asset in the first year, as opposed to 28% had enhanced Section 179 not been enacted for the 2010 and 2011 tax years.

Now assume that the $800,000 is a new equipment purchase placed in service in 2010. X Manufacturing can write off 84% of the asset using bonus depreciation together with Sec. 179.

SECTION 179 BOOST FOR SMALL BUSINESSES

Under the extension, small businesses (whose total equipment purchases don’t exceed $2 million) can expense the first $500,000 for the 2010 and 2011 tax years.

$800,000 on New/Used Machine

OLD LAW (pre-2008 change/2010 extension)

Section 179 Deduction = $128,000

PLUS 14% depreciation on remaining 1st yr basis ($672K) = $ 94,080

TOTAL Old Law First-year Deduction = $222,080 – 28% write-off in 1st yr.

NEW 2010/2011 LAW - $800,000

Sec. 179 Deduction = $500,000

PLUS14% on remaining basis ($300K) = $ 42,000

TOTAL 2010/2011 Deduction = $542,000 – 68% write-off in 1st yr. 

2010 50% BONUS DEPRECIATION EXTENSION

Plus Sec. 179 can be combined with 50% Bonus Depreciation on NEW equipment purchases in 2010.

http:/www.mazumacapital.com$800,000 on NEW Machine

NEW 2010 LAW - $800,000

Sec. 179 Deduction = $500,000

PLUS 50% Bonus Depreciation on remaining basis ($300K) = $150,000

PLUS 14% on 1st year basis ($150K) = $ 21,000

TOTAL 2010 Deduction = $671,000 – 84% write-off in 1st yr.

* Examples assumes a 7-year asset depreciation class

Source: AMT- The Association For Manufacturing Technology