The President recently signed into law the “Hiring Incentives to Restore Employment Act of 2010” (the Act; PL 111-147). The Act gives a one-year lease on life to enhanced expensing rules under section 179 of the Internal Revenue Code, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years.
For tax years beginning in 2010, the maximum amount that a business may expense is once again $250,000, and the expensing election once again begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009. These provisions will apply to all businesses, whether sole proprietorships, corporations, partnerships, or limited liability companies. For pass-through entities, the $250,000 and $800,000 limits apply at both the entity and taxpayer levels. The deduction is further limited to the net income of the trade or business.
Under pre-Act law, for tax years beginning in 2010, the $125,000 maximum expense and the $500,000 beginning-of-phaseout amounts were inflation-adjusted to $134,000 and $530,000, respectively. These new provisions provide a significant tax incentive for businesses to invest in new equipment. I caution, however, that business capital expenditure decisions should be made on the needs of the business and other economic considerations and not on tax benefits alone.
If you have questions concerning these new provisions, contact me at 214.957.3366 or at response@phdcpa.com.
Ronnie
Copyright 2010, Ronnie C. McClure, PhD, CPA
