Year-end Planning for Capital Goods Purchases in an Uncertain Legislative Environment

Filed in Deductions, Small Business, Tax Law by on September 1, 2009

Encouraging news from the U.S. Census Bureau about increases in orders for and shipments of manufactured durable goods, and higher nondefense orders for capital goods show that businesses, finally, are loosening their purse strings. And, from the tax viewpoint, now is a good time to buy, too, thanks to the availability of bonus first year depreciation, an extraordinarily high expensing amount, and short writeoffs for diverse assets such as farm machinery and equipment, leasehold improvements, restaurants, and retail improvements. However, these tax breaks may not be around after this year due to mounting concerns about expanding budget deficits.

Buy Depreciable Property and Place it in Service This Year to Lock In Bonus First-Year Depreciation

Although bonus first-year depreciation has been extended a number of times, another lease on life for this tax break may not be in the cards. Unless Congress acts, additional depreciation deduction in the placed-in-service year equal to 50% of the adjusted basis of qualified property won’t be available after this year. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.

Last Year for Extra-Generous Luxury Auto Depreciation Limits?

If bonus first-year depreciation deductions come to an end at the close of 2009, so will the extra-generous first-year dollar limit on autos, light trucks and vans subject to the Code Sec. 280F “luxury auto” rules. Under Code Sec. 168(k)(2)(F)(i), the first-year depreciation deduction for new vehicles that qualify for bonus depreciation is $8,000 more than the first-year depreciation limit that would otherwise apply.

For new vehicles bought and placed in service in 2009, and that qualify for bonus first-year depreciation, the boosted first-year dollar limit is $10,960 for autos (not trucks or vans), and $11,060 for light trucks or vans (passenger autos built on a truck chassis, including minivans and sport-utility vehicles (SUVs) built on a truck chassis). The regular first-year luxury auto limits (e.g., for used vehicles) are $2,960 for autos and $3,060 for light trucks or vans. However, these boosted dollar amounts apply only for vehicles bought and placed in service before 2010. As a result, taxpayers thinking of buying a new auto, light truck or van for trade or business use should buy the vehicle and place it in service this year if they want to maximize first-year deductions.

Source: Federal Tax Updates on RIA Checkpoint Newsstand 9/1/09

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