Many business owners are unaware that the acquisition of equipment and software under a $1 purchase option lease or Equipment Finance Agreement (EFA) qualifies for the tax break provided under Section 179 of the Internal Revenue Code. Subject to limitations, Section 179 allows taxpayers to take an outright deduction equal to the full purchase price of qualifying equipment purchased during the tax year, and a $1 purchase option lease or Equipment Finance Agreement is considered a purchase under the Internal Revenue Code.
The limitations on the deduction for tax years that begin in 2013 include:
- an aggregate cap on the Section 179 deduction of $500,000
- a dollar-for-dollar reduction in that cap to the extent that the cost of qualifying equipment placed by the taxpayer during the tax year exceeds $2 million
- the deduction cannot reduce the taxable income below $0
- other applicable limitations
Contact your tax advisor to confirm how you may benefit from this tax break.
50% Bonus Depreciation Extended
Benefit Now Expires December 31, 2013
Taxpayers who use up their entire $500,000 Section 179 tax deduction, or have exceeded the $2 million Section 179 phase out threshold, can turn to the 50% bonus depreciation deduction for a big tax advantage on qualifying equipment acquisitions before December 31, 2013.
50% bonus generally allows for an outright deduction of the otherwise depreciable cost of the equipment. In addition, taxpayers enjoy the regular depreciation deduction (e.g., 20% of the depreciable amount in the first year if 5 year MACRS depreciation applies) on any amount in excess of the Section 179 deduction and the bonus depreciation deduction.
NOTE: The Section 179 and Bonus Depreciation deductions are subject to applicable limitations under the Internal Revenue Code. These materials are not intended to be tax advice. You should speak with your own tax advisor(s) to determine how these rules apply in your circumstances.