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In: Accounting

Discuss how purchasing equipment affects your operation tax wise and your cash flow by using Section...

Discuss how purchasing equipment affects your operation tax wise and your cash flow by using Section 179.

Solutions

Expert Solution

Section 179 and Bonus Depreciation originated during the economic crisis as an incentive for businesses to invest in equipment by allowing depreciation to be captured in the year of purchase, rather than over the useful life of the equipment

In the 2018 tax year, a permanent increase in the annual deduction from $500,000 to $1,000,000 takes effect. Section 179 covers both new and used equipment, including most fueling and convenience store equipment used in retail and commercial fueling operations. Section 179 eligible equipment has been expanded to include improvements to nonresidential property (HVAC, roofs, etc). Additionally, the maximum eligible amount of $1 Million will increase based on an inflation index starting in 2019

The most significant changes are the removal of the previous $2,000,000 cap and the 50% deduction allowance. With the new tax bill, most equipment placed into service after Sept. 27, 2017 can qualify for 100% deduction under this tax treatment, potentially providing cash flow benefits and other advantages for convenience store operators. Additionally, bonus depreciation may now be claimed for used equipment. The provisions are in full effect (100% deduction) through December 31, 2022 and are scheduled to phase out through December 31, 2026


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