Equipment World Digital Magazine
Issue link: http://read.dmtmag.com/i/699963
pensing permanent. (See sidebar at right) All were excellent news for contractors. "I think getting a long-term highway bill is a big factor in 2016," says John Crum, national sales manager, Wells Fargo Equipment Finance Construction Group. "It's brought the industry a degree of stability." But whether or not contractors take advantage of the tax provi- sions will be a matter of indi- vidual circumstances, says Heath Watton, Southeastern Equipment's Ohio regional manager. "It's go- ing to be driven by the year that a contractor has and whether it makes sense. It's definitely a benefit, but it still has to be right for them." What helps, however, is the long-term nature of the tax leg- islation. If a contractor doesn't need it this year, he can still take advantage of it next year. "De- cember was the witching hour during the past few years," Wat- ton says, as the industry waited while Congress played a will- they-or-won't-they game with the tax legislation. "Now people can be strategic about it." It definitely helped G. W. Tatro Construction plan out their 2015 purchases, says Tatro, but he sees it being applied on a more year-by-year basis. "If you have a good year, your nucleus ma- chines might be getting a few more hours, and it makes sense to buy," he says. "But construc- tion is a hard thing to plan out three or four years, because if you get a few bad jobs, it can change things pretty quick." "We had a buying frenzy in December because they didn't pass the legislation until mid-De- cember, and people did well last year," Volvo Financial's Rankin says. "Now that everyone knows it's there, there's going to be a smoother buying pattern. People will be fully able to look at the value proposition of buying or leasing new." Rental comes to the forefront "One of the big headlines is there's been a fundamental shift in using rental," Wells Fargo's Crum says. "Coming out of the recession, contractors are much more open to renting." The American Rental Asso- ciation (ARA) Rental Penetration Index, which was introduced in 2013, now stands at 52.9, mean- ing that 52.9 percent of the value of construction equipment sold in the United States first goes through the rental channel. ARA and its partner IHS Economics created the index by balancing the fleet owned by rental com- panies against the estimated fleet owned by contractors and other equipment owners. If rental com- panies buy more equipment than other types of buyers, the index number goes up; if they buy less than other buyers, it goes down. Since rental companies are also the beneficiaries of a stabilized bonus depreciation and the multi- July 2016 | EquipmentWorld.com 30 buy, lease, rent | continued D epending on how you choose to use them, the bonus depreciation and Section 179 deductions could have a positive impact on your tax bill during the next few years. Under legislation passed in mid-December, the 50 percent bonus deprecia- tion was extended through 2017, allowing buyers to apply a 50 percent bonus depreciation to any new equipment bought during a fiscal year. For example, 50 percent of any new equipment bought before Dec. 31, 2016, can be depre- ciated on a company's 2016 taxes, with the rest depreciated over the remain- ing useful life of the equipment. Keep in mind, though, that the more you depreciate up front, the less you'll be able to depreciate later. The Associated Equipment Dealers says that this needs to be put in perspective, however: "Would you rather have the tax savings in your pocket now to invest in your company or would you rather have Uncle Sam hold onto your money for a couple of additional years?," asks AED's DepreciationBonus.org website. Currently, this bonus depreciation is at the full 50 percent for new property placed in service during 2016 and 2017, and then phases down to 40 percent in 2018 and 30 percent in 2019. The Section 179 $500,000 cap was permanently extended in the 2015 bill. This section of the tax code, according to the Section179.org website, allows businesses to deduct from its gross income the full purchase price of qualifying equipment bought during a tax year, instead of depreciating it over time. Un- like the bonus depreciation, it can be applied to the used equipment that you buy in a certain year, in addition to new equipment. It's designed to be a small business deduction, so if you exceed a total of $2 million in annual qualifying equipment purchases, there's a dollar-for-dollar phase out of the depreciation until it's completely eliminated above the $2.5 million level. The Section 179 will be indexed to inflation in $10,000 increments in coming years. According to Section179.org, companies typically take Section 179 deductions first, fol- lowed by the bonus depreciation. Correctly applying both of these tax instruments requires a thoughtful ex- amination of your own tax liability and consultation with your accountant. In brief: Bonus depreciation, Section 179