How Tax Reform May Impact Your Equipment Financing Strategy
The Tax Cuts and Jobs Act included some changes in financing equipment purchases that may lead your business to revisit its strategy.
Increased expensing limits.
Tax reform increased the limit for expensing certain purchased equipment to $1 million dollars effective in 2018.
The threshold for phasing out the ability to deduct any expenses was increased from $2 million to $2.5 million.
There are now more types of property eligible for the section 179 deduction, including improvements such as roofs and security systems to non-residential buildings.
100% expensing of equipment through 2022.
For qualified property placed in service after September 27, 2017, businesses may take a 100% bonus depreciation expense.
The dates the property was placed in service and the date of acquisition are key factors in determining whether you can take advantage of this increased bonus depreciation.
Used equipment qualifications.
The inclusion of used property as qualified property is a major change that will benefit many businesses.
There are rules, including when the property was placed in service, but this will have a favorable impact for many.
Phase-out of the depreciation bonus.
The bonus depreciation begins to phase-out in 2023 when it drops to 80%, with a 20% reduction each year until it is fully phased out after 2026.
Lower corporate tax rates.
Lower corporate tax rates may make equipment leasing a more cost-effective alternative to purchasing and debt financing.
Repeal of the AMT.
But the repeal of the corporate AMT may drive some companies that previously leased equipment to reconsider their strategy.