It's tax time again, and with the CONEXPO-CON/AGG 2011 show just around the corner, tax consultants say it is worth reviewing IRS rules before going out and making major equipment purchases.
The Obama administration has boosted the Bush-era "bonus depreciation" rules by allowing firms to write off the full value of capital equipment put into service between Sept. 9, 2010, and year-end 2011. Previously, firms could expense half of the purchase value, then depreciate the remaining half over the useful life of the asset.
According to Minneapolis-based CPA firm Grant Thornton LLP, there is no limit to how much you expense under the new bonus depreciation rule. However, be careful that you don't fall into the trap of waiting too late to order the goods.
"You have to own it and it has to be in your possession and available for your intended use," says Todd Taggert, who heads the tax advisor's construction practice.
If you are using a rental or lease-purchase agreement, you may be able to write off the asset under this rule as long as you convert it to a sale before the period ends. The caveat here is that you have to be the first user of the machine to take the expense.
In addition, Taggert says you can use the bonus depreciation provision to cover a net-operating loss carryback for the past two years. This allows a construction firm to receive a check from the IRS for taxes paid in the prior two years.
The highest marginal rate covering the purchase, Taggert says, is about 40%. So if you expect to have a so-so year this year and have paid taxes in prior years, you can fleet up and get some money back.
Even with the new provisions, taking such write-offs isn't expected to have a dramatic impact on equipment spending if the construction market remains depressed, says Taggert:
"If it is going to sit in your yard and collect dust, who cares if Uncle Sam pays 40% of it?" It is important to think through how you can use the equipment before you buy it, he adds.
Now, it's your turn. Will the new tax rules bring you to CONEXPO 2011?