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The "Tax Relief Act of 2010," signed 12/17/2010, extends increased Section 179 expensing for small business equipment purchases made in 2011 and 2012,
as well as a 100% bonus depreciation allowance for new machine tools and other equipment ordered and placed into service during 2011. The bonus
depreciation allowance returns to 50% in 2012.
The Section 179 deduction limit remains at $500,000 for new and used equipment purchases made and placed into service in 2011. That amount will
decrease to $125,000 in 2012. In addition, the cap on how much equipment can be purchased before the deduction begins to phase out remains at $2,000,000.
In 2012, that amount will drop to $500,000.
Section 179 Boost for Small Businesses
Small businesses whose total equipment purchases do not exceed $2,000,000 in 2011 (or $500,000 in 2012) can expense the first $500,000 for 2011 ($125,000 for 2012).
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2011 |
2012 |
| Equipment Purchases |
$600,000 |
$600,000 |
| Section 179 Deduction |
$500,000 |
$25,000* |
| Bonus Depreciation Deduction on remaining amount** |
$100,000 |
$287,500 |
| Regular First Year Depreciation Deduction on remaining amount |
— |
$41,070 |
| Total First Year Deduction |
$600,000 |
$353,570 |
| Tax Savings (assuming 35% tax rate) |
$210,000 |
$123,750 |
| Cost of Equipment After Tax Savings |
$390,000 |
$476,250 |
* The deduction begins to phase out dollar-for-dollar after total purchases exceed $500,000.
** The bonus depreciation is 100% for the 2011 tax year and 50% for the 2012 tax year.
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