Tax incentives, such as new deduction limits under Section 179 of the Internal Revenue Code, may help reduce your taxable income on new and used equipment purchases made in 2022. Here’s how Section 179 works, as well as how it can help boost your bottom line.
What is Section 179 and who does it help?
How does Section 179 work? In short, Section 179 allows a taxpayer to elect to treat the cost of qualified property purchases, such as machinery and equipment used in a trade or business, as an expense in the year placed in service. In 2022, deduction allows taxpayers to elect to expense a portion, or all, of the cost of new and used equipment purchases, up to $1,080,000.
There are several things customers should note about Section 179 in 2022:
1. The deduction limit has increased this year, up from $500,000 in 2017, and $1,000,000 in 2018.
2. Second, the Section 179 expense gets reduced “dollar for dollar” by the amount that total equipment purchases exceed $2,700,000, until the $1,080,000 is completely phased out when total purchases equal or exceed $3,780,000.
With these provisions, Section 179 is squarely aimed at small-to-midsized businesses that regularly purchase anywhere from $5,000 to $2,500,000 in equipment annually, in some cases allowing producers and builders to deduct the entire cost of machinery investments throughout the year.
“Take, for instance, a $300,000 tractor,” said Dan Spaulding, US Sales Manager, CNH Industrial Capital. “With Section 179, business owners can reduce the true cost of the purchase to $195,000 in cash savings when calculated at a 35 percent tax bracket. Those kinds of savings really add up, and they put growers and builders in a better earning position in years to come.”
Why is now the time to take advantage of Section 179?
Because tax codes are always being updated, there’s no guarantee that the same provisions from this year will roll over into the next. That’s especially true with Section 179: many lawmakers have plans to alter the current deduction limits, and others are considering eliminating the benefit altogether.
For these reasons, it pays to take advantage of the generous deduction now. Doing so can help you reduce your taxable income in 2022 — not only that, but according to Spaulding, those savings can be allocated toward creating new business opportunities that might not otherwise be available to small-to-midsized farms and construction businesses.
“These tax savings give farmers and builders an opportunity to make a real investment in their operation,” Spaulding said. “By reducing their taxable income, they’ll be able to update their equipment, get some of the latest technology, expand their acreage, create new marketing opportunities and perform better strategy development.”
Of course, in the current economic climate, many business owners have more than just equipment purchases to think about. Some growers and builders may choose to act more conservatively, saving funds to prepare for an unstable market year ahead. But Spaulding believes now is still the time to invest in Section 179 — not least of all because the tax credit may not be available in years to come. “Inflation and higher than usual input costs may be challenging, but investing in efficiency-boosting equipment now will put customers ahead, instead of set them back,” said Spaulding. “Simply put, there’s always going to be a need for this machinery, and getting the best deal possible on it while that deal is available will give a lot of business owners peace of mind.”
What’s the best way to take advantage of equipment deductions?
Where should growers and builders start to take advantage of Section 179? “Dealers are the best place to begin,” said Spaulding. “Because they’re so close to the operations they serve, they know and understand what kind of equipment their customers need.”
While a trusted certified public accountant can assist with purchasing and investment questions regarding Section 179, CNH Industrial dealers can also help. By offering equipment advice and creating a streamlined purchasing experience that puts growers front and center, local dealers help operations thrive.
In other words, the spark that got you into this business — the promise of sitting in the shiny piece of equipment — isn’t going anywhere soon. Talk to your local dealer to learn more about how you can take advantage of Section 179 deductions.