If you have been trying to decide whether or not to buy a new piece of dental equipment or build out a space in your office, now may be the time. Rules for bonus depreciation and the section 179 deduction are set to expire or change after December 31st 2013.
A business owner can write off up to 50% of the cost of most new equipment and “qualified” leasehold improvements in one year using bonus depreciation. In order to qualify, equipment must be new. It also must be purchased before the end of the year, or there must be a written and binding contract dated before the end of 2013.
In addition to the rules above, for a leasehold improvement to be “qualified:”
- Improvement must be made only to the interior of the building.
- Only non-residential real estate.
- Must be made pursuant to a lease agreement.
- The building must have been placed in service at least three years prior to the improvement.
- Project cannot enlarge the building, benefit any common area, or modify the structural framework of the building
- If you own at least 80% of the business and 80% of the building housing the business, you are considered a related party and do not qualify.
Section 179 Deduction
The larger section 179 deductions we have enjoyed the last few years are set to be reduced. Under section 179, 100% of the cost of qualified assets placed in service may be written off in one year. For assets placed in service before the end of 2013, the maximum deduction is $500,000 (or $250,000 in the case of a “qualified” leasehold improvement). This limit is “phased out” (reduced) dollar for dollar if your total asset purchases exceed $2.0 million, and is completely eliminated if purchases exceed $2.5 million. After 2013, the maximum amount will be reduced to $25,000 with a “phase out” between $200,000 and $225,000. Section 179 is available for new and pre-owned assets, but they must be used at least 50% in your business to qualify.
Give us a call if you have questions about making these decisions, we are here to help!