The 2014 tax year brings us some very significant tax changes in the area of fixed asset and depreciation. For businesses, it will be even more important to review and plan expansions due to reduced immediate tax benefit for these additions.
Code Section 179 changes
One of the most commonly used tax provisions is code section 179, deduction for fixed assets. The code section has been around since the 1980’s. This provision allows companies to expense a portion of the cost of the equipment purchased each year, as long as the deduction does not create a year to date tax loss for the business after the deduction. These fixed assets may be used or new.
The most significant change in 2014 is the upper limited of the allowed election.
- In 1980, when it was established, the amount of the election was $10,000 per year
- In 2013, the amount of the election was $500,000.
Now, in 2014, election amount is $25,000.So, companies will not be able to benefit from the significant instant deduction that they have over the last few years. (Note that the year is not over. There may be changes made to the law before the end of the year.)
Code Section 168(k) changes
Another deduction that has benefited businesses is the special depreciation deduction provided by IRC code section 168(k). This code section has allowed business to write off between 50 and 100 percent of their equipment purchased during the year, as long as the equipment was brand new (i.e. not previously owned by anyone). This code section allowed for a 50% immediate depreciation deduction or bonus depreciation for qualifying fixed assets. Currently, this is no longer available. It is possible that this could change; but, as of the writing of this article, it is no longer available.
For more information on these depreciation changes or for assistance in planning the best way to utilize available deductions, contact Patrick Mutchler at pmutchler@brickleydelong.com or (231) 725-5870.