The Section 179 Federal Income Tax Deduction has been changed as part of the American Recovery and Reinvestment Act and it allows a company to deduct the first $139,000 of equipment (Section 179 Property) purchased in 2012 from their taxable income. For companies purchasing (or leasing – with a $1.00 buy-out lease) up to $560,000 of equipment in 2012, this deduction is available in full. It then phases out on a dollar-for-dollar basis between $560,000 and $699,000 and it is not available for companies purchasing over $699,000 of equipment in 2012. However, companies can finance purchases over $699,000 with an operating lease and may still be able to claim this deduction.
50% First Year Bonus Depreciation
The American Recovery and Reinvestment Act of 2012 also allows for a special 50% Bonus Depreciation for NEW equipment placed in service during 2012 for the production of income before January 1, 2013. This deduction allows an additional 50% first-year depreciation on the adjusted basis of qualified new equipment.
EXAMPLE OF 2012 TAX STIMULUS
$500,000 New Machinery Equipment Acquired in 2012
$139,000 Extended Section 179 Deduction
$180,500 50% Bonus Depreciation of the Balance of $361,000
$25,793.45 14.29% Standard Depreciation
$345,293.45 Total First Year Deduction
$120,852.71 Cash Savings based on Company with 35% Tax Rate
Note: Machine tools and fabricating equipment are typically depreciated over 7 years. Please consult with your accountant. The above calculations are only estimates and everyone’s tax situation is different.
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