Tuesday, February 24, 2009
F. Hal Vandiver
MHIA Executive Vice President, Business Development
How does the Economic Stimulus Package help encourage material handling and logistics investment? Thanks to our friends at the Association for Machinery Technology (AMT) for their input, here is some very good news.
The American Recovery and Reinvestment Act of 2009 extends two tax incentives for business investment through the end of 2009. This includes one-year extensions of 50% bonus depreciation and enhanced Sec. 179 small business expensing, as well as the 5-year Net Operating Loss carry back provision for small businesses.
The boost to $250,000 in Section 179 expensing is extended for new and used equipment purchases made and placed in service in 2009. The amount decreases to $128,000 in 2010. The cap on how much equipment can be purchased to enjoy the write-off remains at $800,000 in 2009. In 2010, that amount drops to $510,000.
The one-year 50% bonus depreciation means you can write off in 2009 an extra 50% of the cost of your new equipment that you buy and start using in 2009 (*Qualifying companies can still receive the 50% bonus depreciation if the new equipment they order has a recovery period of 10 years or more, takes more than a year to produce and costs more than $1 million. Under those circumstances, they are given until the end of 2009 to place the equipment into service.)
Fifty Percent Bonus Depreciation
Bonus depreciation allows businesses an extra one-year boost in how much they can deduct on capital expenditures like equipment that normally would depreciate over time. For example,
OLD LAW (pre-2008 change and 2009 extension) - $100,000 New Machine*
1st year Total Depreciation = 14% = $14,000
2009 LAW - $100,000 New Machine*
1st year Bonus Deprecation: 50% of $100,000 = $50,000
PLUS 14% regular depreciation on remaining property basis ($50,000) = $ 7,000
TOTAL 2009 Deduction on $100,000 machine = $57,000
That's a 43 percent greater tax deduction for a new 2009 machine purchase compared to a 2010 machine purchase.
Expensing for Small Business
Under the one-year extension, small businesses (whose total equipment purchases in 2009 don't exceed $800,000) can also expense the first $250,000 for the 2009 tax year (until 1/1/2010). The 50% bonus depreciation can then be taken on the remaining basis of the machine, if it is new.
OLD LAW (pre-2008 change and 2009 extension) - $400,000 on New or Used Machine*
Section 179 Deduction = $128,000
PLUS 14% regular depreciation on remaining property basis ($272,000) = $ 38,080
TOTAL First-year Deduction = $166,080
2009 LAW - $400,000 New Machine*
Sec. 179 Deduction = $250,000
PLUS 50% Bonus Depreciation on remaining basis = $ 75,000
AND 14% on remaining 1st year basis of property = $ 10,500
TOTAL 2009 Deduction on $400,000 new Machine = $335,500
Total 2009 Deduction on $400,000 used Machine = $271,000
(Bonus Depreciation does not apply to used equipment)
* Examples assume customer is in 7-year asset depreciation class
These two provisions in the economic stimulus package are benefits to MHIA members and their customers. Click here to read the final text of the legislation, and track how the stimulus money is being spent at www.recovery.gov.