Business Equipment Purchases
Business owners who buy capital equipment – machinery, computers, and other tangible goods, usually prefer to deduct the cost in a single tax year, rather than a small amount over a number of years. Federal tax law lets small businesses accelerate depreciation under tax code Section 179 for qualified property.
Benefits of Non-Tax Leases
Non-Tax/Capital Lease. The benefit of this lease type is the ability to take advantage of IRC Section 179 and expense up to the amount allowed for the year that the equipment is installed. You may depreciate any excess on the depreciation schedule for that particular asset. Examples of this type of lease include $1.00 Buyout, 10% Purchase Upon Termination (PUT).
Example: Equipment is financed and put in use in 2008 and the cost is $275,000. Using Section 179 and assuming a 35% tax bracket, net savings on the equipment would be:
|1st Year Write Off|
($250,000 is maximum write-off)
($275,000-$250,000 = $25,000 $25,000 x 50% = $12,500)
($12,500 x 20% = $2,500)
|Total 1 st Year Deduction|
($250,000 + $15,000 = $265,000)
|Tax Savings Assuming Rate of 35%|
($265,000 x 35% = $92,750)
|1st Year Bottom Line Equipment Cost|
($275,000 – $92,750 = $182,250)