Don't Depreciate... Expense It!

2008 Economic Stimulus Act
Your company may benefit by the following:
Qualified business asset purchases may qualify for an additional accelerated (“Bonus”) depreciation of up to 50% during the 2008 calendar year.
Typically a business depreciates machinery over the useful life of the equipment.
Under section 179 of the tax code, a business may expense up to $250,000.00 during the 2008 tax year. This deduction is almost double the amount granted last year.
Please consult with your accountant or tax advisor in order to understand how this 2008 stimulus package may work for you.

Up to $100,000 on Used Machinery Purchases May Now be Written Off!

The bad news first: Congress did nothing to help the used machinery industry when it increased the accelerated depreciation of new capital equipment purchases from 30% to 50%. This bill was signed into law last month. Used Machinery was specifically excluded from this tax break by referring to the qualifying verbiage of last year's law.

Now the good news: Congress did help the used capital equipment industry, by raising the amount a company may expense in the first year from $25,000 to $100,000. By not attaching any language to this provision, used capital equipment would be included.

It works like this:
In order to write off the cost of capital expenditures, a company may choose to either depreciate or expense the purchase. If a company purchases new equipment, they may only depreciate it. However, if a company purchases used equipment and the cost of the machine is $100,000 or less, they then may elect to either depreciate or expense it. So, now with the ability to write off up to $100,000 in the first year of purchase (using the expensing method), used equipment may be much more appealing to the prospective machinery customer. Expensing is covered in the IRS Code Section 179. Just like the ability to take advantage of accelerated depreciation, there are certain restrictions on the ability to expense. As with any purchase, a customer should consult their own advisors. However, the MDNA consulted with two independent tax accountants who have verified our findings that purchasers of used machinery may take advantage of this new tax law's expensing provision.

Hopefully, armed with this information, MDNA used machinery dealers will have a competitive response when faced with the customer who still thinks that purchasing new equipment has a tax benefit over buying used equipment.