Considering New Equipment? Buy Before Bonus Depreciation Expires

Should you buy new equipment for your construction business in 2012? The answer to this question for many of you may be a resounding yes. That’s because depreciation laws are scheduled to disappear or revert to less favorable limits beginning January 1, 2013 if Congress does not act. There are two options for expensing qualifying capital expenditures through the end of this year: Section 179 and bonus depreciation.

Under Section 179 you can deduct 100 percent of the cost of qualified purchases up to $139,000, however this is limited to net income, so you can’t use this option to generate losses. The deduction begins to phase out when total spending on qualified purchases exceeds $560,000, completely phasing out at $699,000. Qualifying property under this provision is wide-reaching and will most likely include any new or used equipment purchased for construction as well as certain software, most other tangible property expenditures and qualified leasehold improvements. If there is no tax law change, the amount businesses will be able to deduct for these expenditures drops to $25,000 in 2013.

Bonus depreciation allows for a deduction of 50 percent of the purchase price of qualified property. Qualified property in this provision must be new, but you can take bonus depreciation in excess of net income. Bonus depreciation will not be available under the current tax provisions for tax years beginning January 1, 2013 and beyond.

As is most often the case with tax planning, there are other factors to consider before determining if purchasing equipment in 2012 is the best decision for your business. We don’t recommend that you buy expensive equipment for the sole purpose of capturing a deduction. If you think your business would benefit from investing in new equipment, contact your tax advisor to strategize while you still have time to execute a plan.

About the Author: Terri Richards (pictured) is an accounting services manager at Kaufman, Rossin’s Boca Raton, Fla. office, and a QuickBooks ProAdvisor. Kaufman Rossin offers QuickBooks training, accounting and consulting services for a variety of industries, including construction. She can be reached at trichards@kaufmanrossin.com.