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New Tax Act Promotes Buying Used Construction Equipment Part 4

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As Houston construction law attorneys, we know that any time contractors purchase equipment that helps them perform their work and maximize their tax savings in the process, this is a win-win situation for everyone. As companies rely on cash flow, smaller companies that may typically be apprehensive about making a significant investment into equipment can take advantage of this tax incentive and grow their business. As we will discuss in this final section, although this is an exciting opportunity for contractors, you need to be mindful of ever-changing tax laws, rules, and regulations that apply in your state.

2017 Tax Laws

As we have discussed in sections one, two, and three of this four-part series, Section 179 deduction is a welcome change to tax laws that impact the construction industry. Before this tax act was passed in late December 2017, the former laws were significantly different. For example, Section 179 used to give businesses the opportunity to only deduct up to $500,000 annually (now one million dollars) on purchased business equipment at a rate of 50 percent deduction (now 100 percent). The spending cap has also increased from a $2 million to $2.5 million annually. Although it’s a good time for tax savings, contractors need to always stay on top of the newest tax laws that could impact their business.

Fluctuating Tax Laws

Several crucial state and federal tax laws change year by year. As we have covered throughout this series, the deduction limit has increased in the last few years and some of these benefits (like 100 percent Bonus Depreciation) will eventually expire. It’s important that contractors consistently visit government sites to ensure they are up-to-speed on the latest tax legislation.

Further, many contractors are working on projects in several states and you may not know that the states you are performing work in have varying tax laws that can also impact deductions. When filing a tax return, you need to consider that their can be significant tax implications dependant on the state you file a tax return in. A Houston construction law attorney knows the tax laws applicable in your state.

Consult With a Tax Expert

Although contractors have the option to fill out their own Section 179 paperwork, we encourage you to contact a Houston construction law attorney to guide you through this process. Our attorneys will not only ensure that your tax form and Section 179 paperwork is in compliance with federal tax laws, but we can also advise you on other ways you can maximize your tax savings for your business.

If you would like to speak with a Houston construction law attorney, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

In part one of this four-part series, our Houston contractor attorneys educated you on a new tax act that allows you to buy construction equipment and take up to one million dollars in deductions. The best part about this new tax law is that the equipment can be new or preowned. In this section, we will focus on the type of “business equipment” you can purchase, lease, or finance under Section 179 deduction.

Business Equipment That Qualifies for Deduction

Here are some of the most common pieces of newly owned “business equipment” in the construction industry that are eligible for deductions under Section 179:

  • Construction Equipment: Whether it’s bulldozers, front loaders, backhoes, or any similar type of equipment, new or used, this machinery is all qualified for deductions under the new tax act.
  • Work Trucks: Any vehicle that weighs more than 6,000 pounds that is used for work purposes including trucks, tractor-trailers. and forklifts are appropriate for tax deductions.
  • Tangible Personal Property: Although the definition of “tangible” personal property may vary by state, this includes any equipment that is perceptible by touch or any of the other senses. For example, preinstalled building materials, electricity, and furnishing accommodations may apply; however, it’s best to confirm your tangible property with a tax expert before filing a tax return.
  • Computers and Office Equipment: Any computers, “off the shelf” software, and property attached to an office structure is applicable. This includes HVAC units and security systems.

For more information on qualified “business equipment”, we encourage you to visit the official Section 179 website.

Criteria for Qualification

There are several ways in which purchased equipment can qualify for this exciting new tax incentive. This includes the following:

  • Newly Purchased: As we mentioned in part two, in order to qualify, you must purchase equipment that is newly owned by your company. Even if it’s used, it must be equipment you recently bought for your business.
  • Actively Used: The equipment must be “placed into service” during the year you are filing a tax return for it. In other words, if you buy equipment in 2018, but do not use it until 2019, you must wait until 2019 to file a deduction.
  • Sole Ownership: The equipment cannot be previously owned by your company or by another company associated with your business. It truly must be new to your business.
  • Primarily for Business: This equipment must be “more than 50 percent business-use” to be eligible.

For more information on this new tax act, please read part four.

If you would like to speak with a Houston contractor attorney, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

As our Houston construction lawyers discussed in the first section of this four-part article, with Section 179 deduction, business owners can buy, lease, or finance “business equipment” and deduct up to one million dollars of the total cost of that equipment when they file their tax return. However, for larger businesses that spend more than the $2.5 million cap limit to qualify, they can take advantage of Bonus Depreciation. This tax benefit is also currently available for up to a 100 percent deduction on the purchasing price of equipment in 2018.

Is Bonus Depreciation Right for You?

In past years, Bonus Depreciation was only offered to contractors that purchased new equipment. Under this new tax act, pre-owned equipment is also included. Most businesses will take advantage of Section 179 first, and once they have exhausted that spending limit, will then utilize Bonus Depreciation. However, there are some variables that can impact which tax option is right for your business.

Here are a few important differences between these two tax incentives:

  • Cap Limit: Bonus Depreciation has no spending limit, so businesses can receive a deduction despite spending more than the Section 179 spending limit of $2.5 million.
  • Taxable Income: You can only receive a Section 179 deduction if you have enough taxable income to qualify. If your business experiences a net loss for the year, you can deduct some of the purchasing cost through Bonus Depreciation; however, you are not eligible for the Section 179 deduction.
  • Timeframe: Bonus Depreciation for 100 percent deduction is only expected to be available through 2023, so it’s best to take advantage of this incentive soon.

How Do You Apply for a Tax Deduction?

The first step is to buy, lease, or finance new or used equipment. The second step is to make sure you put that equipment into service this year. Lastly, when you file your annual tax return you must fill out the appropriate paperwork to activate these tax savings. Specifically, you need to include an Internal Revenue Service (IRS) form, IRS form 4562, and attach this completed document to your tax return.

Although you do have the option to fill out this form yourself, it’s best to consult with a Houston construction lawyer that specializes in tax law. We can assist you with filing your tax return and can also help you maximize the tax savings for your business.

For more information on this new tax act, please read sections three and four.

If you would like to speak with one of our Houston construction lawyers, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

On December 22, 2017, President Donald Trump signed a new tax act that gives contractors a great opportunity to take advantage of tax deductions when buying new or used construction equipment in 2018. Section 179 deduction is an Internal Revenue Service (IRS) tax code that contractors can utilize to deduct the purchase price of equipment from the annual gross income of their company. In other words, when you invest in construction equipment and put it to use this year, you pay less for the equipment thanks to this new tax benefit.

Whether the equipment is new, used, leased, purchased, or financed, contractors have an opportunity to invest in equipment while maximizing their tax savings in the process. In this four-part article, our Houston construction attorneys will catch you up to speed on this new tax act that promotes purchasing new and used equipment.

What is the Section 179 Deduction?

Although tax laws can be extremely complicated, Section 179 is actually pretty straightforward. As it states on the Section 179 government website, this tax code “allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year.” This tax incentive was created to promote purchasing and investing in equipment for small business owners, but some of the tax benefits can also benefit larger companies.

2018 Spending Limit

When businesses file a tax return, qualified applicants can enjoy a total deduction of up to one million dollars on the purchase of new and used construction equipment (among other items classified as “business equipment”). Contractors can spend up to $2.5 million on equipment until this tax benefit is reduced on “a dollar for dollar” basis. In other words, if a business spent one million dollars more than the spending cap limit, a total of $3.5 million, they would not receive a deduction. However, for larger businesses that spend more than the cap limit of $2.5 million, they do have the option to utilize another beneficial tax code known as Bonus Depreciation that also allows up to a 100 percent write-off on purchased equipment.

For more information on this new tax act, please read sections two, three, and four.

If you would like to speak with a Houston construction attorney, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.