Construction company owners have a variety of daily obstacles to overcome and goals to meet. They also regularly make major decisions regarding equipment and machinery investments. Such purchases can make or break a construction firm.
A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The Tax Cuts and Jobs Act (TCJA) increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation. This can really make a difference to your bottom line at the end of the year, ending the uncertainty about whether the exemption would be available and how much it would be, which previously made it very difficult to plan large purchases.
The Section 179 exemption saves money on capital expenses, leading to increased savings, higher profit margins and greater overall success. You will be able to make crucial investments on the equipment, machinery, tools, and technology necessary to grow your business and expand into new markets. Consider it a financial boon to construction firms.
By taking advantage of Section 179 exemptions, construction business owners can begin identifying new equipment needs, itemizing new models and consulting with professional advisers. Deducting a half million dollars can make a world of difference for a small construction business that needs to grow, a surefire way to stay competitive in an increasingly disruptive industry.
Working without the best tools available can leave a construction firm scrambling to keep up with industry peers. Now tools and equipment that might have been out of reach for smaller enterprises are much more accessible, and the deduction works with leased equipment as well. This can provide additional benefits in allowing companies to stay up to date on technology and to reduce the depreciation levels of leased machinery.
For construction companies, the deduction should help account for the rising expense of labor in light of the skilled worker shortage and contribute to training employees.
The bottom line: The roller-coaster ride of the past few years is over. The tax deduction limit is permanent. Almost all types of business equipment qualify for the deduction, including the following:
- Large manufacturing tools and equipment.
- Tangible personal property used in business.
- Business vehicles with a gross vehicle weight in excess of 6,000 lbs.
- Off-the-shelf software.
- Office furniture.
However, there are limits to what is considered a capital expense. You cannot write off the following:
- The purchase of land.
- The purchase of buildings.
- Intangible property — copyrights, patents, or any expense to procure such items, including the cost to file or the attorneys’ fees paid to prepare filings.
There are a lot of complexities in Section 179. Contact Randy Brammer to learn more.