I talked to a couple of clients this past week about equipment and furniture equipment for their businesses. The Economic Stimulus Package added some huge benefits for business owners. And if you set it up right, your real estate investments could get some advantage as well.
First, let’s look at the new programs:
The Section 179 expensing deduction has been increased to $250,000. This is applicable for any personal property items with the exception of “llisted” property such as vehicles. Real property is excluded. Keep your total purchases under $400,000 to qualify for the whole amount.
Remember that the Section 179 has offset income from a trade or business. You can’t use it to offset passive income, for example
The next big benefit is the 50% bonus depreciation. This allows you to take 50% of the basis as a deduction, before you calculate the regular depreciation.
The bonus depreciation can offset other income (unless it’s coming through as a real estate loss and then you are subject to the real estate loss rules).
Now, here’s where it gets interesting. The Section 179 is voluntary. You might get more of a deduction, but if you can’t use it, it will get suspended. On the other hand, the bonus depreciation can be used against other income.
So, let’s say you bought equipment for $300,000.
Plan A: Section 179 of $250,000 Bonus 25,000 Reg – 20% 5,000
Total = $280,000. But it is possible that you could only take $30,000 of it.
Plan B; Bonus $125,000 Reg 20% 25,000
Total = $150,000 All would be allowed.
What’s the best choice? Standard answer….. IT DEPENDS!