Equipment World Digital Magazine
Issue link: https://read.dmtmag.com/i/85677
reporter | by Lauren Heartsill Dowdle Payment due? C ontractors may re- ceive an unpleasant surprise when they review their taxable income for 2012. With bonus depreciation dropping this year by half and completely expiring in 2013, many will face higher tax gains on sold equip- ment and lower depreciation deductions. Passed in 2008, the bonus de- preciation is an economic stimulus provision that can be applied to certain new equipment purchas- es. "Bonus depreciation allows companies to take a tax deprecia- tion deduction in addition to the regular deduction that they take every year," says Ron Hodgeman, tax director at WTP Exchange, a like-kind exchange provider and affi liate company of WTP Advisors. "The additional tax deductions provided by bonus depreciation allow contractors to reduce their tax liability." However, the deduction dropped from 100 percent in 2011 to 50 percent this year and is slated to end in 2013. "The expira- tion of bonus depreciation will affect mid-to-large size contractors (who acquire more than $25,000 of equipment yearly) the most because the small contractors will still be able to take advantage of the Section 179 deduction," Hodgeman says. In 2012, contrac- tors can expense up to $139,000 of " The expiration of bonus depreciation will affect the mid-to-large size contractors the most." equipment purchases under Sec- tion 179. But in 2013, this amount shrinks to $25,000, further reduc- ing deduction opportunities for contractors in this size bracket. "Bonus depreciation helps tax expenses now but hurts your fi nancial statement later when you have to recognize the depreciation you took a few years back," says John Holbrook, owner of the Hol- brook Company in Grand Prairie, Texas. "If I'm eligible for it in the future, I'll ignore it and take it on Expiring bonus depreciation could pose tax risks a normal fi ve-year schedule." The dissolving depreciation may also affect used equipment sales, says Garry Bartecki, vice president of fi nance, Associated Equipment Distributors (AED). "Contractors have less depreciation to use to offset gains from selling used units," he says. With used equip- ment prices increasing, the taxable gain when they sell will also be higher, he says. "Suppose you sold off a num- ber of used units with a zero-tax basis," Bartecki says. "The units would be 100-percent taxable. But now it is 2012, and you do not get 100-percent bonus depreciation on any equipment purchase. End result is you probably owe taxes." Here are the tax depreciation deductions for a company acquiring $100,000 in qualify- ing equipment [assuming that a fi ve-year modifi ed accelerated cost recovery system (MACRS) asset is obtained]: $20,000 $60,000 $100,000 EquipmentWorld.com | May 2012 13