Written by: Keith Frame, CPA
I’ve not heard much discussion about the expiration of the increased Section 179 deduction or the expiration of Bonus depreciation under Code Section 168(k). Both of these provisions expired as of December 31, 2013.
Just to refresh, the Section 179 deduction limit was raised to $500,000 during the economic downturn to incentivize business owners to purchase property and equipment to expand their businesses. Bonus depreciation (Section 168(k)) was added as an additional incentive for the purchase of new property and equipment. This provision allowed the immediate write-off of 50% or 100% of the cost of new equipment in the first year – depending on the year placed in service.
These enhanced tax provisions have been with us now for several years. Many of us accountants have almost forgotten about tax depreciation rules because many of our clients have been immediately writing off the cost of their new equipment (and enjoying the related tax savings as a result).
All else being equal, if a business owner has the same year in 2014 that they had in the prior year and they expect to be able to purchase some equipment to wipe out their tax liability, they may be in for a surprise.
There is no bonus depreciation and the Section 179 limit is $25,000 in 2014. Business owners better be reviewing their forecasts and consulting with their tax advisors before embarking on any capital equipment purchases for the year. They may need to save some money for taxes.