Due to the passage of recent Stimulus Acts and Congressional Tax Bills, there are several notable updates to the Section 179 deduction. The specific impact that these Stimulus Acts have had on the Section 179 deduction is related to the dollar limits of the deduction and bonus depreciation increasing.
As the year-end is fast approaching, many healthcare businesses are considering purchases, including medical equipment. Understanding and utilizing available tax incentives should be a consideration for these purchasing decisions.
Section 179: How to Cash In on Tax Savings
Before we review the 2018 updates, first let’s recap the fundamentals of this tax code.
The Section 179 deduction is not a complicated tax code and is surprisingly a lot simpler than most realize. The IRS tax code, Section 179, permits businesses to subtract the full purchase price of qualifying equipment purchased or financed during the tax year. In other words, if you buy a piece of qualifying equipment, you can deduct the full purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and reinvest in growing their business.
Previously, the tax code was never set in stone — it could be amended or repealed each year. The great news about Section 179 as of 2018 is that the deduction is now permanent, giving businesses plenty of time to get ready for the upcoming year.
Small and medium-sized businesses have historically found the dollar limits to be plentiful. The Stimulus Acts may not have necessarily served consumers, but the Acts significantly helped many small businesses by reducing the cost of equipment they need to purchase or lease to run their day-to-day operations.
Prior to the initial Stimulus Act in 2008, Section 179 allowed for businesses to deduct up to $125,000 on qualifying equipment – and the deduction began to phase out for companies that spent over $500,000. Section 179 was anticipated to scale down over time, and ultimately be eliminated entirely. However, Section 179 has been a big hit and over the last few years Section 179 has gone through numerous enhancements, designed to give businesses incentives to invest in themselves by purchasing, financing or leasing new equipment and software.
How Section 179 Received a Facelift in 2018
The following is a recap of significant updates for 2018 related to Section 179’s tax code.
- Section 179 deduction limit increased to $1,000,000
This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2018, the equipment must be financed or purchased and put into service between January 1, 2018 and the end of the day on December 31, 2018.
- Bonus Depreciation has increased from 50% to 100%
The Bonus Depreciation is available for both new and used equipment. Bonus Depreciation, typically used for expensing beyond the Section 179 limit, has increased to 100% through 2022. Section 179 has gone through multiple revisions over the years. Thanks to the ‘Economic Stimulus Act of 2008’, there was a one-time “bonus first year depreciation” on qualifying equipment. Then, the Tax Relief Act of 2010 temporarily increased Bonus Depreciation to 100% of new equipment cost. Until the final two weeks of 2015, Bonus Depreciation had been eliminated – but the PATH Act reinstated Bonus Depreciation to 50% of new equipment cost through the 2017 tax year. Most recently, the Tax Cuts and Jobs Act increased Bonus Depreciation to 100% for 2018. Essentially, if you buy enough equipment to exceed the deduction, you can take a “bonus” depreciation on the rest.
- Bonus Depreciation has been extended to used property
Previously, the Section 179 deduction could be applied to used equipment, but bonus depreciation could not. This is an enticing improvement for those who have considered adding used machines to their lineup. Now is the time to proceed with used equipment purchases due to the newly bonus depreciation eligibility. It is recommended that business owners should contact their accountant / tax advisor prior to purchasing equipment to ensure proper eligibility is met. When deciding to purchase a used piece of equipment, make sure the provider has a proven track record. Auxo Medical can assist in procuring the right machine to fit needs, as well as provide expert service to support ongoing maintenance.
- The phase-out purchase limit increased to $2,500,000
This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to a company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $3.5 million on equipment will not qualify for the deduction.)
Tax Savings for Medical Equipment
It’s fiscally and strategically responsible for businesses to reinvest in themselves in order to keep up with expanding technology, competition, and ensuring customers are receiving the highest level of service. Through the IRS tax code Section 179, the American government has provided an easier way for small business owners to do so.
Because these tax laws are now permanent, businesses can confidently plan ahead for equipment purchases with assurance that budgets can be accurately managed.
The equipment must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment by the percentage of business-use to arrive at the monetary amount eligible for Section 179.
The Section 179 Deduction limit is $1,000,000, so if you want to take advantage of the $1,000,000 write-off for the 2018 tax year, you need to act before the end of this year. Please be sure to consult with your own accounting or tax team, including how you can take action. If you have questions about maximizing the tax code deductions on refurbished medical equipment, our team at Auxo Medical will be here to assist you.