Pinnacle Bank: E-Letter: April 2008:

Home >> About Pinnacle >> e-Letter >> April 2008

Pinnacle e-Letter

Tax Incentive for Equipment Helps Free up Cash
By Dave Rowe, financial advisor and manager of Pinnacle's Equipment Leasing Services area

Business owners asking themselves whether they really need to purchase equipment might be nudged to do so this year after hearing the details of the Economic Stimulus Act (ESA).

Part of the ESA recently passed by Congress offers temporary tax incentives for businesses that purchase equipment in 2008. Businesses benefit in two ways: They get a break on the initial investment under Section 179 of the Internal Revenue Code, as well as an additional depreciation bonus.

Section 179. The ESA increases the expensing limit from $125,000 to $250,000 as long as total purchases do not exceed $800,000. For each dollar over, the eligible expensing amount drops by one dollar. Companies with total purchases that exceed $1,050,000 cannot use Sec. 179. New and used equipment is eligible.
Depreciation bonus. Under the ESA, businesses can expense an additional first-year depreciation of 50 percent of the purchase cost over and above regular depreciation. Equipment must be new and purchased and placed in service in 2008. There is no cap.

Although the depreciation bonus is discretionary, business owners who take advantage of it can invest in their own businesses by freeing up cash for other uses. Here's an example of how Sec. 179 and the depreciation bonus can be combined for maximum savings.

	Before ESA	With ESA
Price of equipment	$800,000	$800,000
Sec. 179 limit	$125,000	$250,000
Remaining depreciable amount	$675,000	$550,000
50% depreciation bonus	n/a	$275,000
First year depreciation 20% (MACRS* 5 year)	$135,000	$55,000
Total amount expensed (Sec. 179+bonus+1st year depreciation)	$260,000	$580,000

*Modified Accelerated Cost Recovery System

Business owners who want to take advantage of the temporary tax incentives for equipment can finance these expenditures through a capital lease or traditional loans. Contact a tax professional for advice about your particular situation.

Dave can be reached at (615) 743-6077 or dave.rowe@pnfp.com.

Return to the April 2008 e-Letter