Section 179--New And Improved

 As the rebate checks from Uncle Sam are hitting the bank accounts and mailboxes of American citizens, it seems like a good time to revisit a less publicized section of the economic stimulus package. Debate rages as to whether the cash payments to individuals will result in a significant boost to the economy; however, there is little debate that updates to Section 179 have potential to positively impact businesses in 2008.

To my mind, it would be nice if CNN, MSNBC and other news outlets would devote a little air time disseminating information about updates in Section 179. Meanwhile, although I’m no Wolf Blitzer, PRODUCTION MACHINING is our “Situation Room,” so here goes.

Officially called “The Recovery Rebates and Economic Stimulus for the American People Act of 2008,” it is written to provide tax relief for both individuals and businesses. Our interest here is the tax relief for business, which is contained in Section 179 of the act.

Basically, the business tax relief has two aspects that can result in six-figure savings for businesses that can respond before the end of 2008. The first is 50-percent bonus depreciation for new capital expenditures, such as machine tools, ordered and in service during 2008.

The bonus depreciation allows businesses an extra 1-year boost in how much they can deduct on capital expenditures for equipment that normally would depreciate over time. Under the old law, a new $100,000 machine tool could only generate a 2008 depreciation of 14 percent, or $14,000.
With this new act in place, first-year depreciation of this same purchase can be $57,000. This breaks down into 50 percent of the $100,000 machine investment plus 14 percent of the remaining $50,000 property basis, or $7,000. Bottom line is that it is a 43-percent greater tax deduction for a new 2008 machine purchase.

The second tweak to the old Section 179 is a significant increase to the expensing allowance for small business. In 2008, expensing for small business more than doubles how much can be written off for new or used equipment, from $128,000 to $250,000. Moreover, the new law significantly increases the cap on how much can be purchased and still qualify for full Section 179 benefits, from $510,000 to $810,000.

It’s important to remember that the cost of all depreciable assets is deductable over time. The big value of these new incentives is designed to improve near term cash flow. If you plan to invest in equipment in 2008, sooner is better than later when you look at these numbers. It’s already June.

Please regard the above chart from AMT (The Association For Manufacturing Technology) that nicely summarizes these new Section 179 changes citing examples. 