Companies that purchase new machinery are eligible for a depreciation bonus of 30% in the tax year in which it is placed into service.
The depreciation bonus, provided in President Bush’s economic stimulus bill, which he signed earlier this year, can provide significant tax benefits for capital-intensive businesses.
For example, for a qualified investment of $100,000, the previous law would have allowed a business to depreciate 20% – $20,000 – the first year. Under the new law, a business could depreciate $44,000 – the 30% bonus plus 20% of the remaining 70% of undepreciated value.
The depreciation bonus applies to new — not used — equipment. In addition, even with the depreciation bonus, a company ultimately will pay the same amount in taxes. Tax liability in later years will be slightly increased to make up for near-term tax savings. The advantage is that short-term tax liability will be reduced, improving cash flow for the year in which the equipment is purchased.
There is a ‘window of opportunity’ to take advantage of the depreciation bonus. The original use of the equipment must commence on or after Sept. 11, 2001 and before Sept. 11, 2004; the equipment must be put into service prior to Jan. 1, 2005.
Companies that have questions about the special depreciation bonus should confer with their accountant or financial advisor as well as machinery suppliers.
The Associated Equipment Distributors has developed a Web site with more information about the deprecation bonus; the Internet site is located at www.depreciationbonus/org.
