This IRS Tax Incentive Expires Soon

Many businesses are hesitant to spend big bucks on capital improvements or new equipment due to inflation, high interest rates and economic uncertainty. But there’s at least one very good reason for not waiting until next year to address a tangible need for your business.

Reason: The bonus depreciation rate for capital purchases is dropping from 60% for 2024 to 40% in 2025 barring a retroactive move by Congress in early 2025. Any new tax incentives and rates for businesses by the next Congress will be determined by the outcome of the election.

Under U.S. tax code section 179, the deduction limit for qualifying equipment purchases is $1.22 million and the phase-out threshold is $3.05 million for tax year 2024. For a theoretical $100K purchase made and put into service by New Year’s Eve, a business can immediately deduct $60K from their business tax liability for 2024.

Eligible assets that qualify for bonus depreciation include a wide variety of equipment, machinery and third-party software. Real estate and intangible assets such as patents and in-house software can’t be deducted.

Businesses that spent on capital improvements in 2023 and earlier were able to take advantage of 80% to 100% write-off rates. Waiting until next year when the bonus depreciation rate dips to 40% will only cost companies more in tax savings.

Tax & Price Tag Incentive: 2 Areas to Consider

Among the assets that businesses can write off up to 60% are heavy sport utility vehicles (more than 60,000 pounds), work trucks, delivery vans and specialized vehicles. As it so happens, new car prices are down 2% across the board since early 2022.

New vehicles were selling for nearly 9% above the manufacturer suggested retail (MSRP) price two years ago. Now? The average new car sold for under MSRP in March and May according to Car Dealership Guy.

Keep in mind the the maximum section 179 expense deduction for SUVs placed in service this year is $30,500. And inventory is outstripping demand nationwide, including in California.

One other “can’t hurt to check out” purchase is an emergency generator. Hurricane Beryl knocked out power to millions in much of Texas and the greater Houston metropolitan area. The grid is more vulnerable than 20 years ago in part due to greater reliance on wind and solar power generation which can fail when energy is needed most. Some state utilities are making upgrades now to boost resiliency.

A commercial generator can cost anywhere from $10K to $30K. The section 179 write-off can take the sting out of a purchase and (bonus) keep your facility running while competitors are shut down.