Weighing Section 179 Tax Benefits Vs. Bonus Depreciation Deductions for Leased Equipment

With the start of fourth quarter, the annual fall tradition of discussing Section 179’s tax benefits of the Internal Revenue Service Tax Code will start proliferating Internet search engines from financing providers. Admittedly, Americorp Financial also has jumped the shark with promotional materials showing Section 179’s potential tax benefits for leased equipment.

HOWEVER, Americorp Financial also wants our vendor partners to know that Section 179 might not hold as much water with your customers based on their specific business conditions and model. According to Americorp Chief Financial Officer Steven Grant, the updated Tax Cuts and Jobs Act provides additional flexible options with bonus depreciation deductions.

As an overview, the Tax Cuts and Jobs Act (TCJA) created new expense options for equipment acquisitions.

  • TCJA increased the Section 179 deduction from $510,000 to $1 million and increased the phaseout limit from $2 million to $2.5 million.
  • TCJA increased the bonus depreciation deduction from 50% to 100%, although there is no requirement to use 100%.

Is Section 179 still your customer’s best expense option under the new tax law?

Should your customer still expense under Section 179? It depends.

  • If their taxable income is greater than the Section 179 expense, the answer is “yes” and they should use Section 179. Keep in mind, Section 179 cannot result in a net loss.
  • If the Section 179 expense is greater than their taxable income, the answer is “no,” and they should take the 100% bonus depreciation deduction.

What if your customer does not want to expense all their current year capital acquisitions?

  • Some taxpayers may not want to take the full deduction in the year of acquisition due to tax considerations. Electing Section 179 will allow your customers to expense only those purchases they want to fully expense (given the limits) while depreciating the rest of their purchases using conventional depreciation methods.
  • If they elect to use the 100% bonus depreciation deduction, ALL capital acquisitions must be expensed in the current year. They cannot selectively choose.

“Ultimately, the decision comes down to your customer as every situation is different,” Grant said. “Both sides have benefits, but Americorp Financial wants our vendors to inform their customers about the tax deductions that make the most sense for their business.”

This is not legal, tax or financial advice. You should always consult with your tax advisor for the specific impact to your business. You can review tax reform information on the IRS’ website.