January 1, 2014
The new year brings new beginnings, but it brought an end to bonus depreciation.
Congress adjourned for the holidays without extending the tax deduction which allowed fleets to write off up to 50 percent of the cost of new trucks and equipment as long as they were placed into service in 2013.
The benefit expired as the ball dropped Dec. 31.
Under normal conditions, depreciation happens gradually as an asset ages and sheds value. However, Congress created bonus depreciation in 2010 to spur the manufacturing sector, which was mired in the recession.
Under the original legislation, buyers could write off 100 percent of the purchase in the 2011 tax year. However, the benefit was extended as part of the deal that avoided the “fiscal cliff”, but was reduced to 50 percent.
The stimulus program is the function of Section 179 of the IRS tax code, and allows businesses write-off a portion of qualified capital expenditures “subject to a dollar-for-dollar phase-out once these expenditures exceed $2,000,000 in the 2013 tax year,” according to tax website Section179.org.
“While (the Sec. 179 tax benefit) will be available in 2014, the maximum deduction will drop from $500,000 to $25,000,” Tom Windram, a partner in McGladrey LLP’s Washington National Tax practice and National Leader, Federal Tax Credits & Incentives, wrote in a piece for Forbes. “These benefits have been used by small and mid-sized firms to make investments that would have been far more difficult to make in tough economic conditions, and it is conceivable that some will decide to postpone 2014 purchases without them in place, and that growth could be held back.”