POWERFUL TAX INCENTIVES FOR NEW EQUIPMENT PURCHASES EXTENDED THROUGH 2009 

Here’s how the new provisions work for you:

Let’s assume that the Peekless KeyHole Co.* orders and puts into service a new machine tool costing $100,000. Under the new 50% bonus depreciation, Peekless canwrite off 57% of the asset in the first year, as opposed to only 14% had bonus depreciation not been enacted for the 2009 tax year.

50% BONUS DEPRECIATION

OLD LAW (pre-2008 change and 2009 extension) - $100,000 New Machine

1st year Total Depreciation = 14% = $14,000

2009 LAW - $100,000 New Machine

1st year Bonus Deprecation: 50% of $100,000 = $50,000

PLUS 14% regular depreciation on remaining property basis ($50,000) = $ 7,000

TOTAL 2009 Deduction on $100,000 machine = $57,000

That’s 43% More ($43,000) in Tax Deduction for 2009 new machine purchase than in 2010!

SECTION 179 BOOST FOR SMALL BUSINESSES

Under the one-year extension, small businesses (whose total equipment purchases in 2009 don’t exceed $800,000) can ALSO expense the first $250,000 for the 2009 tax year (until 1/1/10). The 50% bonus depreciation can then be taken on the remaining basis of the machine, if it is new.

OLD LAW (pre-2008 change and 2009 extension) - $400,000 on New or Used Machine

Section 179 Deduction = $128,000

PLUS 14% regular depreciation on remaining property basis ($272,000) = $ 38,080

TOTAL First-year Deduction = $166,080

2009 LAW - $400,000 New Machine

Sec. 179 Deduction = $250,000

PLUS 50% Bonus Depreciation on remaining basis = $ 75,000

AND 14% on remaining 1st year basis of property = $ 10,500

TOTAL 2009 Deduction on $400,000 new Machine = $335,500

Total 2009 Deduction on $400,000 used Machine = $271,000

(Bonus Depreciation does not apply to used equipment)

* Examples assume customer is in 7-year asset depreciation class

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