January 1, 2013
 
As you may know, on December 31st, 2012, Congress recently passed The 2012 Taxpayer Relief Act to avoid the so-called fiscal cliff.  The good news is that under this new law, both IRS section 179 deductions and the 50% Bonus Depreciation have been extended through 2013.  The IRS section 179 deductions have been increased to $500,000. 

Below are those new rules.  Businesses need to contact their CPA for their own tax planning and qualified equipment.  

Tax Deductions for 2013 on equipment purchases

IRS section 179 expense election for 2013 is $500,000 on new and used equipment.   This means equipment can be fully deducted in 2013 up to $500,000.  When total equipment purchases reach $2,000,000 for a company then they start losing the first $500,000 deduction, dollar for dollar. 

Bonus depreciation, 50% of new equipment cost has been extended through Dec 31, 2013.   This will allow businesses to expense 50% of any new equipment cost in 2013 and depreciate the other 50% over standard depreciation schedules.  The 50% bonus depreciation can be carried forward into future years if not used in 2013.

Examples of Depreciation – 2012 Taxpayer Relief Act

Equipment Cost = $500,000 or less
Up to $500,000 write-off in 2013 from IRS section 179
100% of its cost can be depreciated in 2013 !!

Equipment Cost = $650,000
 $500,000 write-off in 2013 from IRS code 179 (unused portion $150,000)
+ $75,000 write-off from 50% bonus depreciation on the unused $150,000 (unused portion $75,000)
+ Normal 1st year depreciation
$575,000 plus normal depreciation for 2013 or more than 88% of its cost !!

Equipment Cost = $800,000
 $500,000 write-off in 2013 from IRS code 179 (unused portion $300,000)
+ $150,000 write-off from 50% bonus depreciation on the unused $300,000 (unused portion $150,000)
+ Normal depreciation rate for property
$650,000 plus normal depreciation for 2013 or more than 81% of its cost !!

Equipment Cost = $1,000,000
 $500,000 write-off in 2013 from IRS code 179 (unused portion $500,000)
+ $250,000 write-off from 50% bonus depreciation on the unused $500,000 (unused portion $250,000)
+ Normal depreciation rate for property
$750,000 plus normal depreciation for 2013 or more than 75% of its cost !!

Equipment Cost = $2,000,000
 $500,000 write-off in 2013 from IRS code 179 (unused portion $1,500,000)
+ $750,000 write-off from 50% bonus depreciation on the unused $1,500,000 (unused portion $750,000)
+ Normal depreciation rate for property
$1,250,000 plus normal depreciation for 2013 or more than 62% of its cost !!

Note:
 
1)      IRS section 179 can be used for both new and used equipment
2)      50% Bonus Depreciation is only for new equipment
3)      These examples assume new equipment