Published on 2/10/2021
Planning your next equipment purchase? Whether you intend to buy, finance or lease, you may be qualified to take advantage of substantial tax savings under Section 179 again this year.
Here’s your guide for navigating Section 179, bonus depreciation and other bottom-line enhancing tools in 2021.
The Section 179 deduction limit for 2021 was raised to $1,050,000 with an equipment spending cap of $2,620,000. This is a slight increase from the 2020 Section 179 tax deduction which was set at a $1,040,000 limit with a threshold of $2,590,000 in total purchases.
Using the Section 179 deduction, you can write off the entire purchase price of qualifying equipment up to the deduction limit. In 2018, qualifying equipment was expanded to include both NEW and USED equipment. This definition of qualifying property remains in effect for 2021.
Bonus depreciation, which is generally taken after the Section 179 spending cap is reached, will again be offered at 100% on eligible new or used assets acquired in the current year.
Under the Tax Cuts and Jobs Act, first-year bonus depreciation at 100% will remain in effect until January 1, 2023. After that, the following phase-down with occur:
Leasing continues to be an effective tool for lowering payments and preserving cash and credit lines. From a tax perspective, two of the most popular types of leases are a true tax lease and a conditional sales lease.
By opting for a true tax lease, you can avoid the diminishing benefit of Section 179 and take advantage of a consistent write-off over the course of the lease rather than expensing 100% in the first year only.
In contrast, a conditional sales lease enables you to take depreciation just like a loan while benefitting from a lower lease payment, making it an attractive option if you’re looking to enhance cash flow.
Rexin Equipment offers both true tax leases and conditional sales leases to meet your various needs and unique tax situation.
Although tax incentives like Section 179 and bonus depreciation can be beneficial, these provisions should only be used in situations that make long-term financial sense for your operation. That’s why it’s important to always consider your tax circumstances and cash-flow requirements when using these tools.
Before making any large capital purchases, it’s a good idea to consult with an accountant or tax adviser to ensure deductions are claimed according to the Section 179 code. Keep in mind not all states conform with federal increases to expensing limitations or the federal treatment of bonus depreciation provisions.