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.
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.