Why Now is the Best Time to Buy Equipment
by Martin Kirshner, CPA, MSA, Gray, Gray & Gray, LLP
Thinking about adding a new truck to your delivery fleet? Need to upgrade your service vans? Does your office building need a new roof? Now is the time.
As we plunge into a new heating season we are also approaching the end of the calendar year. This makes it a good time to invest in equipment upgrades and property repairs, thanks to the favorable tax advantages afforded by the IRS’ Section 179 depreciation deduction.
Section 179 has long enabled fuel oil and propane companies to claim immediate deductions for qualified assets instead of amortizing them over a period of years. In addition, the 100% bonus depreciation introduced by the Tax Cuts and Jobs Act of 2017 means the entire cost of certain eligible assets placed into service in 2019 can be written off this year.
The Section 179 deduction has been around for many years, and applies to tangible personal property, such as equipment or machinery, purchased for business use. The good news is that, beginning this year, the annual Section 179 deduction limit has been raised to $1.02 million (subject to a phase-out if more than $2.55 million of qualifying property is placed into service during the year). This limit is essentially double the previous cap.
You may also elect to include qualifying real property in a Section 179 deduction. Recent changes to the tax law have expanded the definition of real property to include qualified improvements of nonresidential property, such as roofs, HVAC equipment, fire protection and alarm systems, and security systems.
The bonus depreciation provision allows a business to deduct 100% of the cost of certain assets in their first year of service, instead of capitalizing the assets and gradually depreciating them. This can be applied to both new and used assets (other than real estate). This 100% bonus depreciation is in place through the year 2022, after which it will be phased out by 20% per year until it disappears completely after 2026.
What if an asset — like a new delivery vehicle or service van — is eligible for both a Section 179 deduction and bonus depreciation? It is generally more advantageous to claim the 100% bonus depreciation because there are no limitations.
Section 179 and bonus depreciation deductions can deliver significant tax savings benefits for many fuel oil and propane companies on their 2019 tax returns. But you must place the qualifying assets into service by December 31, 2019.
If you would like more information about Section 179, bonus depreciation, or which types of assets may be eligible for these deductions, you should contact your tax advisor.
Martin Kirshner, CPA, MSA is the Director of Client Services and leads the Energy Practice Group at Gray, Gray & Gray Certified Public Accountants. He specializes in accounting, tax, and consulting for fuel oil and propane company owners. You can reach Martin by calling (781) 407-0300 or at firstname.lastname@example.org.