The American Recovery and Reinvestment Act extends for purchases made in 2009 increased Section 179 expensing for small business equipment purchases, as well as a 50% bonus depreciation allowance for new machine tools and other equipment ordered and placed in service during 2009.
1. Boosted Section 179 Expensing.
The boost to $250,000 in Section 179 expensing is extended for new and used equipment purchases made and placed in service in 2009 The amount decrease to $128,000 in 2010. Moreover, the cap on how much equipment can be purchased to enjoy the write-off remains at $800,000 in 2009. In 2010, that amount drops to $510,000.
2. Bonus Depreciation Makes a Comeback.
Bonus first year depreciation was first allowed following the terrorist attacks of 2001 but generally isn’t available for property acquired after 2004.
The one-year 50% bonus depreciation means you can write off in 2009 an extra 50% of the cost of your new equipment that you buy and start using in 2009 (* Qualifying companies can still receive the 50% bonus depreciation if the new equipment they order has a recovery period of 10 years or more, takes more than a year to produce and costs more than $1 million. Under those circumstances, they are given until the end of 2009 to place the equipment into service.)
Here’s how the new provisions work for you:
Let’s assume that you order and puts into service a new machine tool costing $100,000. Under the new 50% bonus depreciation, you can write off 57% of the asset in the first year, as opposed to only 14% had bonus depreciation not been enacted for the 2009 tax year.
50% BONUS DEPRECIATION
OLD LAW (pre-2008 change and 2009 extension)
$100,000 New Machine
1st year Total Depreciation = 14% = $14,000
2009 LAW - $100,000 New Machine
1st year Bonus Deprecation: 50% of $100,000 = $50,000
PLUS 14% regular depreciation on remaining
property basis ($50,000) = $ 7,000
TOTAL 2009 Deduction on $100,000 machine = $57,000
That’s 43% More ($43,000) in Tax Deduction for 2009
SECTION 179 BOOST FOR SMALL BUSINESSES
Under the one-year extension, small businesses (whose total equipment purchases in 2009 don’t exceed $800,000) can ALSO expense the first $250,000 for the 2009 tax year (until 1/1/10). The 50% bonus depreciation can then be taken on the remaining basis of the machine, if it is new.
OLD LAW (pre-2008 change and 2009 extension)
$400,000 on New or Used Machine
Section 179 Deduction = $128,000
PLUS 14% regular depreciation on remaining
property basis ($272,000) = $ 38,080
TOTAL First-year Deduction = $166,080
2009 LAW - $400,000 New Machine
Sec. 179 Deduction = $250,000
PLUS 50% Bonus Depreciation on remaining basis = $ 75,000
AND 14% on remaining 1st year basis of property = $ 10,500
TOTAL 2009 Deduction on $400,000 new Machine = $335,500
Total 2009 Deduction on $400,000 used Machine = $271,000
(Bonus Depreciation does not apply to used equipment)
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2009 Tax Incentive Explanation
Capital Equipment Refund Form
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