Tax Relief on New Machinery Purchases

Are you considering buying or leasing a new CNC panel saw, CNC router, machining center, thermoformer, lathe or other machinery? 2004 is the best year to make your new equipment purchase. Thanks to Uncle Sam.

The accelerated tax depreciation rule, combined with the existing depreciation regulations for investments in capital equipment, offer a significant tax incentive, return on investment and additional cash flow. The tax incentive and additional cash flow, along with productivity gains, result in a tremendous return on investment, which accelerates the payoff of your new equipment.

The Jobs and Growth Tax Relief Reconciliation Act of 2003, which was passed by Congress, had two major changes regarding depreciation. The first was an increase in the bonus depreciation amount and the second was an increase in the Section 179 election to expense deduction.

Bonus Depreciation: Bonus depreciation was increased to 50 percent. Bonus depreciation is only for new purchases. Machinery delivered before Jan. 1, 2005 qualifies for the 50 percent bonus.

Section 179 Deduction: Under Section 179 of the Internal Revenue Code, you can choose to recover all or a part of the cost of new machinery, up to a limit, by starting to take deductions for it in the year you place the equipment in service.

The current Section 179 election-to-expense method of depreciation annual allowance lets you write off up to $100,000 for tax year 2004. Thereafter, the limit returns to $25,000, unless there is further legislation to change the amount.

In addition to the tax savings, technologically advanced equipment may provide productivity gains of three times or more compared to older and more conventional equipment. The resultant increase in customer service, improved quality, faster deliveries, improved safety, less downtime, less maintenance costs and less spoilage will increase sales and profits.

Distributors, fabricators and manufacturers should keep in mind that lead times for new equipment deliveries can be up to 4 months or more. So start planning now to take advantage of this opportunity before it expires on December 31, 2004.

Click on here for a depreciation and cash flow example for a combined new equipment purchase of $200,000.

For more information, regarding the Jobs and Growth Tax Relief Reconciliation Act of 2003, contact your tax professional or the Internal Revenue Service at 800-829-1040.