Bad news, everyone!
If you’re not familiar with Section 179 benefits, let us catch you up to speed. You’ll find one of our blog posts on the topic here and our tax savings calculator here. For those who need a very brief primer, Section 179 tax breaks allow you to write-off equipment leases up to $500,000. If you need equipment, there simply isn’t a better tax break out there.
Now that you’ve got a warm and fuzzy feeling, we’ll dive into the bad news. According to the Boston Globe, the Section 179 deduction and bonus depreciation are being scaled back by Congress. That means the huge breaks seen over the last few years will be reduced greatly:
The Section 179 deduction allows a small business to deduct up front rather than depreciate the cost of equipment like computers, vehicles, machines in manufacturing, office furniture and sheds. The deduction for 2011 is $500,000. In 2012, it will drop to $125,000. And in 2013, it’s expected to fall to $25,000 — the amount it was back in 2002.
Let me add a quick quote from my co-worker Matt Sullivan, who puts that in further perspective.
The changes mean a potential loss of $131,250 in savings if someone purchases in 2012 instead of 2011.
Does it still make sense to buy or lease equipment and go for the deduction? Of course it does. A tax break is still a tax break, and it’s not like it’s going to hurt you to apply for a deduction. What it does mean is that you can’t count on the same level of tax relief that you might have this year. That’s not great news, either way.
What say you? Are you more or less likely to lease equipment now, knowing the changes that are coming?