Large Business Depreciation Deduction for 2013

July 26, 2013
Large Business Depreciation Deduction for 2013
Larry F. Warner Jr CPA - Stephenson & Warner Inc.,

Large Business Depreciation Deductions Still Available for 2013

Many advisors in the tax professional community thought 2013 bring lower depreciation deductions for capital purchases.  Congress surprised most “experts” by maintaining the generous depreciation write-offs that existed in 2012 and prior years.  Below is a rundown of the more significant deductions available:

Section 179 deductions increased for 2013 – Section 179 of the Internal Revenue Code allows eligible businesses to write off their equipment and software purchases in their entirety in the year of purchase instead of depreciating it over several years.  This provides a better matching of the cash outlay for the purchase to the deduction for businesses who buy their equipment instead of financing it.  Section 179 can be utilized for $ 500,000 worth of purchases in 2013.  This large deduction is scheduled to drop to $ 25,000 for 2014.  Please note that 179 can not be used to increase a loss so you must have a profit before you get any current benefit from the election.

Section 179 available for some Real Estate expenditures – Generally Section 179 can’t be elected for real estate related purchases.  However, it is available for up to $ 250,000 of qualified improvement costs for 1) restaurant buildings, 2) interiors of leased nonresidential buildings, and 3) interiors of retail buildings.  Real estate expensing is not scheduled to be available for 2014 and is part of the afore mentioned overall $ 500,000 limit.

50% First-year Bonus Depreciation – In addition to or in lieu of Section 179, a business can deduct bonus depreciation equal to 50% of the cost of most new (not used) equipment and software placed in service by December 31 of this year.  Bonus depreciation also increases the amount of depreciation that can be taken on new passenger auto’s or light trucks by $ 8,000.  This valuable tax break will expire at the end of 2013.  Please note that bonus depreciation can not create or increase a loss, similar to Section 179 expense.

Businesses that are having a good year and have been contemplating expansion may want to pull the trigger before the end of 2013 to take advantage of these enhanced depreciation deductions before they expire.  Please contact us to determine how these deductions may benefit your business.