Clients have asked us about Section 179 and the recent change to the tax code. Below, guest blogger Christina Floyd from First American weighs in on how it may affect your technology investment plans for the next few years.
Section 179 Update
The Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) extended many tax provisions, including a permanent reinstatement of Section 179 and an extension of bonus depreciation through 2019. The legislation makes it possible to save money through use of tax deductions by leasing equipment.
The PATH Act set the Section 179 deduction limitation to $500,000 with a $2,500,000 limit on capital purchases. Bonus depreciation of will continue through 2019. Bonus depreciation will be 50 percent of the cost of equipment acquired and put in service during 2015, 2016 and 2017. Then bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019.
Equipment Leasing & Section 179
With Section 179 you may be able to deduct the full price of qualifying equipment and software purchased, financed, or leased during the tax year. Deduct the full amount of the equipment and software without paying the full amount this year.
With a capital lease, your firm can spread out the purchase cost of the equipment so the budget is not affected by yearly fluctuations in your investments in equipment and software.
The amount you save in taxes can turn out to be more than the amount you pay. When used with a full Section 179 deduction, certain types of equipment leases will enhance your profits because the deductions for equipment and software purchased will exceed your cash outlay in 2016. And you will be getting the equipment your firm needs to stay technologically current.
What qualifies for Section 179 Deduction?
According to the provision, the following may be applied:
- Equipment purchased for business use
- Tangible personal property used in business
- Computers and related equipment
- “Off-the-shelf” computer software
- Office furniture and certain fixtures
Advantages of Equipment Leasing
Leasing presents several advantages. Among them are:
- Fixed-rate financing
- Additional financial diversity through a different source of funds
- No performance covenants
- No blanket lien filings