depreciation

Will Leasing Equipment or Buying it be More Tax Efficient for Your Business?

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Recent changes to federal tax law and accounting rules could affect whether you decide to lease or buy equipment or other fixed assets. Although there’s no universal “right” choice, many businesses that formerly leased assets are now deciding to buy them.

Pros and cons of leasing

From a cash flow perspective, leasing can be more attractive than buying. And leasing does provide some tax benefits: Lease payments generally are tax deductible as “ordinary and necessary” business expenses. (Annual deduction limits may apply.)

Leasing used to be advantageous from a financial reporting standpoint. But new accounting rules that bring leases to the lessee’s balance sheet go into effect in 2020 for calendar-year private companies. So, lease obligations will show up as liabilities, similar to purchased assets that are financed with traditional bank loans.

Leasing also has some potential drawbacks. Over the long run, leasing an asset may cost you more than buying it, and […]

By |March 4th, 2019|business, depreciation, expensing, New Tax Laws|0 Comments

Depreciation-Related Breaks on Business Real Estate: What You Need to Know When You File Your 2018 Return

Commercial buildings and improvements generally are depreciated over 39 years, which essentially means you can deduct a portion of the cost every year over the depreciation period. (Land isn’t depreciable.) But special tax breaks that allow deductions to be taken more quickly are available for certain real estate investments.

Some of these were enhanced by the Tax Cuts and Jobs Act (TCJA) and may provide a bigger benefit when you file your 2018 tax return. But there’s one break you might not be able to enjoy due to a drafting error in the TCJA.

Section 179 expensing

This allows you to deduct (rather than depreciate over a number of years) qualified improvement property — a definition expanded by the TCJA from qualified leasehold-improvement, restaurant and retail-improvement property. The TCJA also allows Sec. 179 expensing for certain depreciable tangible personal property used predominantly to furnish lodging and for the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and […]

By |January 29th, 2019|business, depreciation, New Tax Laws|0 Comments

Could a Cost Segregation Study Help You Accelerate Depreciation Deductions?

Businesses that acquire, construct or substantially improve a building — or did so in previous years — should consider a cost segregation study. It may allow you to accelerate depreciation deductions, thus reducing taxes and boosting cash flow. And the potential benefits are now even greater due to enhancements to certain depreciation-related breaks under the Tax Cuts and Jobs Act (TCJA).

Real property vs. tangible personal property

IRS rules generally allow you to depreciate commercial buildings over 39 years (27½ years for residential properties). Most times, you’ll depreciate a building’s structural components — such as walls, windows, HVAC systems, elevators, plumbing and wiring — along with the building. Personal property — such as equipment, machinery, furniture and fixtures — is eligible for accelerated depreciation, usually over five or seven years. And land improvements — fences, outdoor lighting and parking lots, for example — are depreciable over 15 years.

Too often, businesses allocate all or most of a building’s acquisition or construction costs to […]

By |October 3rd, 2018|cost segregation, deductions, depreciation, New Tax Laws|0 Comments

Depreciation & Expensing Provisions in the PATH Act

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Depreciation & Expensing Provisions in the PATH Act

The PATH Act makes permanent the enhanced Code Sec. 179  expensing and phaseout limits, and 15-year write-off for qualifying leasehold improvements, restaurant buildings and improvements, and retail improvements. In addition, the Act provides for a retroactive extension of provisions that had expired at the end of 2014, including 50% bonus first-year depreciation (at a rate that gradually decreases). For further information and to discuss whether your purchase is a “qualifying property”, please contact us.

Enhanced Expensing Made Permanent

Under pre-Act law. For tax years beginning after Dec. 31, 2014, the maximum expensing limit had dropped to $25,000, and the investment ceiling dropped to $200,000.

New law. The Act makes the following changes to the Code Sec. 179 expensing election:

  • The $500,000 expensing limitation and $2 million phase-out amounts are retroactively extended and made permanent. After Dec. 31, 2015, both the expensing and phase-out limits are indexed for inflation.
  • The rule that allows expensing for computer software is retroactively extended and made permanent.
  • Qualified real property (generally qualified leasehold improvements, qualified restaurant, and qualified retail property) is eligible to be expensed.
  • For tax years beginning after Dec. 31, 2015, air conditioning and heating units are eligible for expensing.

15-Year Write-off for Qualified Leasehold and Retail Improvements and Restaurant Property Made Permanent

Under […]

By |January 12th, 2016|depreciation, expensing, irs|0 Comments

2015 PATH Act Amendments Regarding Vineyards

One of the more interesting and potentially very beneficial amendments to the Internal Revenue Code as a result of the 2015 PATH Act related to vineyards are the new provisions related to bonus depreciation and the deemed time of placement-into-service to an earlier date for certain fruit bearing trees and vines.

Under the old provision (IRC §168(k)) the allowance of 50% bonus depreciation would only be available in the year the property is placed into service. In the case of fruit bearing grape vines, this would be when the vine becomes income producing (typically a few years after planting).

However, under the new amendment (IRC §168(k)(5)) the rules shifted the deemed time of placement-into-service to a much earlier date. Grape vines now become “qualified property” when planted and are eligible for the 50% bonus depreciation in their first year.

There are other caveats to the new provisions, however generally taxpayers will be allowed depreciation deductions sooner for planted vines.  If you think this may apply to you or you’re interested in hearing more, please feel free to contact us and one of our professional staff would be happy to help you.

Note: This provision only applies to vines […]

By |December 31st, 2015|depreciation|0 Comments

“Heavy” Trucks and Vans Continue to Qualify for Fast Cost Recovery

Passenger autos used primarily for business (i.e., greater than 50 percent) are subject to significant federal depreciation limitations, e.g., $3,160 for passenger autos and $3,460 for light trucks or vans in the first year at 100 percent business use. However, the luxury auto depreciation limitations only apply to passenger autos. A truck or van escapes passenger auto status if its Gross Vehicle Weight Rating (GVWR-the manufacturer’s maximum weight rating when loaded to capacity) exceeds 6,000 pounds. A vehicle that is not classified as a passenger auto and used primarily for business is depreciated without limit under the MACRS rules. And, these vehicles also qualify for the Section 179 deduction. Under current 2015 tax law, you can expense a total of $25,000 for all eligible property placed in service in tax years beginning in 2015 using Section 179. However, Congress may extend the increased Section 179 ($500,000) and bonus depreciation (50 percent) that existed for 2014. It should be noted that qualified vehicles are likely subject to a $25,000 per vehicle limit for Section 179 expensing if Congress extends the increased deductions. And, you must have real-time records (such as a mileage log) that establish […]

By |November 5th, 2015|depreciation|0 Comments

Top 5 Year-End Corporate Tax Planning Tips

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Bonus Depreciation & Section 179 Depreciation Deduction Rules for 2012

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Taxpayers may want to consider making fixed asset purchases before December 31, 2012 to take advantage of two accelerated depreciation options:
1.      Bonus Depreciation: For most qualified property placed into service in between January 1, 2012 and December 1, 2012, the maximum bonus depreciation allowance is 50% of the cost of the property.  Purchasing  new assets that have a useful life of 20 years or less generally qualify for bonus depreciation.  Bonus depreciation amounts are based upon a calendar year.
2.       Section 179:  For tax […]