The Economic Stimulus Act of 2008 significantly increasesyour purchasing power when it comes to buying new equipmentunder Tax Code Section 179. In fact, the deduction limitshave almost doubled for 2008, and there is a new, one–time, bonus50 percent depreciation once that deduction limit is reached.
In 2008, Section 179 allows you to write off the full purchaseprice of equipment purchases (up to $250,000) and also allows afirst year bonus 50 percent depreciation for any over–limit equipment.This provides immediate tax relief and makes purchasingequipment and investing in your medical practice or business notonly feasible, but also a financially sound decision.
When acquiring and installing new equipment including X–raymachinery, lasers, computers, and other tangible goods, you wouldobviously prefer to deduct the entire cost this tax year (2008), ratherthan a little at a time over a number of years. Section 179 essentiallyallows just that – you can deduct, from your taxable income,the full amount of equipment purchases up to the approved limitfor a given year ($250,000 for 2008)
Example – 2008 Equipment Purchase: $400,000 Cost
- First Year Write Off: $250,000 (Under new law: $250k = Max)
- Bonus First Year Depreciation: $75,000 ($400k–250k=$150k x 50%=$75k)
- Normal First Year Depreciation: $15,000 (5yr $75k x 20% = $15k)
- Total First Year Deduction: $340,000 ($250k+$75k+$15k)
- Tax Savings: $119,000 (Assumes a 35% tax rate)
- Total Equipment Cost: $281,000 ($400k less tax ded. of $119k)
Other Limits and Qualifying Property
There are some limits to Section 179 – the total cost of theproperty that may be expensed cannot exceed the total amountof your practice taxable income during the tax year. Most types ofbusiness equipment qualify for the Section 179 expensing allowance,including:
- Tangible personal property (machines, equipment, furniture, etc.)
- Business Vehicles with gross weight between 6,000 and 14,000 lbs. (which includes many trucks, SUV’s etc.) The maximum amount that can be claimed for vehicles is $25,000.
One of the most common questions is whether the Section 179expensing election is only available for the purchase of new assetsor whether equipment such as used vehicles qualify. The answer isthat the asset just has to be new to you.
To be eligible for the Section 179 deduction, the asset must beused at least 50 percent for business in the first year it is placed inservice. The asset cost that is eligible for the deduction is based onthe business usage percentage.
Phase–Out of Section 179
There is a phase out of the allowable Section 179 deduction iftoo much new Section 179 qualifying property is purchased duringthe tax year. For 2008, that phase–out begins at $800,000. Forevery dollar of newly acquired qualifying property purchased duringthe tax year that exceeds this amount, the Section 179 deductionis reduced by a dollar; but not below zero.
How can financing the equipment help your cash flow?
SNB can structure an equipment loan that allows you to takeadvantage of the new 2008 limits in Tax Code Section 179 and canfinance up to 100 percent of the purchase price of the equipment(new or used) plus any related set–up costs. The loan can be pricedat either floating or fixed interest rates, depending on the borrower’spreference. In addition, the loan repayment schedule (amortization)can be matched to the depreciation schedule so that theequipment is fully depreciated at the same time as the loan is paidoff. By structuring the equipment purchase loan properly, your taxsavings may exceed your first year’s payments on the equipment.By taking advantage of the tax and financing opportunities, it’sdefinitely a win–win opportunity for your healthcare practice!
Albert Estrada is a Senior Vice President of SNB Bank ofSan Antonio. He is the senior lender at the Stone Oak bankingoffice. Albert, a native San Antonian, has over 20 years ofhealthcare banking experience. He is a member of the BexarCounty Medical Society Circle of Friends and is involved withBioMed SA as well as the Methodist Stone Oak Hospital AdvisoryCommittee.
