IRS Section 179
Under IRS Section 179, equipment purchases, up to
$100,000, can be expensed (deducted from taxable income) if installed by
December 31st. Finance leases ($1.00 buyout) qualify for this deduction in
their year of inception. The 2003 law quadruples the amount of qualified
property that can be expensed under IRS Section 179 from $24,000 to
$100,000 for tax years 2003, 2004, and 2005. Qualifying property now also
includes off-the-shelf computer software.
Any purchase in excess of $400,000 (2004 threshold)
reduces the $100,000 Section 179 limit. For example, if you purchase
$410,000 in qualifying property, the Section 179 deduction is limited to
$90,000.
The total cost of property that may be expensed for
any tax year cannot exceed the total amount of taxable income (determined
after application of the investment limitation) derived from the active
conduct of any trade or business during the tax year. Costs disallowed
under this rule may be carried forward an unlimited number of years subject
to the ceiling amount for each year.
The maximum amount of asset cost that can be
expensed by year is:
• $100,000 for 2004 and 2005
• $ 25,000 for following years
For
example, if you purchase or lease a piece of equipment for $45,000 and
install it in 2004, you are eligible to take a $45,000 tax deduction in the
respective year.
*Contact your tax advisor for specific information
regarding IRS Section 179 and all accounting procedures.
Job and Growth Tax Relief Reconciliation Act of
2003
Under the Job and Growth Tax Relief Reconciliation
Act of 2003 (JGTRRA) there is a 50% Depreciation Bonus for qualified
capital investments by businesses, on equipment placed in service through
the end of calendar year 2004. This is an increase from the 30% allowed
under the Job Creation and Workers Assistance Act of 2002.
Highlights of the tax changes as it affects
equipment purchases:
1.
JGTRRA allows
taxpayers to claim an additional first-year depreciation allowance equal to
50% of the adjusted basis of qualified property.*
2.
Equipment must
be acquired and placed in service before 12/31/2004.
3.
Taxpayers may
elect to employ a 30% depreciation rate in lieu of the increased 50% rate.
Qualified property is tangible, personal property
with a MACRS recovery period of 20 years or less.
Please consult your tax advisor regarding this
accelerated depreciation opportunity and all accounting procedures.
