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Non-Tax/Capital Lease
The benefit of a Non-Tax/Capital Lease is that it can take advantage of Section 179: expense up to $250,000 if the equipment is put in use in 2009. In addition, you may depreciate any excess on the depreciation schedule for that asset. Examples of Non-Tax/Capital Leases include a $1.00 Buyout, an Equipment Finance Agreement (EFA), and a 10% Purchase Upon Termination (PUT) Lease.
The total amount of property that is purchased for any tax year cannot exceed the total amount of taxable income. The asset you acquire must be purchased for active use in your business. To make sure that your asset qualifies, refer to the IRS's Publication 946.
Example: Assume you finance $300,000 worth of business equipment, put it in use in 2009, and take advantage of Section 179. Your tax savings could be significant:
Equipment Cost Example |
$300,000 |
1st Year Write Off
($250,000 maximum for 2009 Section 179 write-off) |
$250,000 |
50% Bonus Depreciation
(Remaining value: $300,000-$250,000=$50,000; $50,000x50%=$25,000) |
$25,000 |
Normal 1st Year Depreciation
(Depreciation calculated at 5 years=20%; $25,000x20%=$5,000) |
$5,000 |
Total 1st Year Deduction
($250,000+$25,000+$5,000=$280,000) |
$280,000 |
Tax Savings Assuming Rate of 35%
($280,000x .35=$98,000) |
$98,000 |
1st Year Net Cost after Tax Savings
($300,000-$98,000=$202,000) |
$202,000 |
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The sample calculation shows how taking advantage of Section 179 can significantly lower the true cost of equipment ownership from $300,000 to $202,000. For the specific impact to your company, please contact your tax advisor.
The election, which is made on Form 4562, is for the tax year the property was placed in service or an amended return filed within the time prescribed by law. The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income during the tax year. Section 179 property is property that you acquire by purchase for use in the active conduct of your business. To ensure property qualifies, reference Publication 946.
This expense deduction is provided for taxpayers (other than estates, trusts or certain non-corporate lessors) who elect to treat the cost of qualifying property as an expense rather than a capital expenditure. Under Section 179, equipment purchases, up to the amount approved for a given year, can be expensed (deducted from taxable income) if installed by December 31st. Non-Tax leases qualify for this deduction in their year of inception. Any excess above the expensed amount can be depreciated depending on the equipment type. Not all states follow federal law. Contact your tax advisor for further detail or visit www.irs.gov for specific detail.
Act Now!
To take advantage of the incentives and the substantial tax savings, your business equipment must be put in use by year-end. Please contact your tax advisor to learn about the specific impact to your business.
If you need advice about leases and Section 179, feel free to contact us at 800-604-4817 or advice@economicstimulusinfo.com.
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