Contractors, fleet owners, and other equipment buyers can capture substantial cash savings on purchases of construction equipment before the end of 2016. Section 179 of the U.S. tax code is designed to help businesses by allowing them to deduct the full purchase price of equipment, up to $500,000.
“Buyers who come to IronDirect and take advantage of Section 179 are getting two very substantial cost breaks,” said IronDirect President Tim Frank. “First, they get our low, no-haggle pricing on excavators, compactors, scrapers, and other equipment. Second, taking full advantage of the tax deduction and depreciation, they can easily save 30 percent or more. Those are great incentives.”
Section 179 allows deduction of the full cost of equipment, including anything in the IronDirect product lineup, up to $500,000. That includes excavators, dozers, wheel loaders, compactors, tractor/scraper units, utility vehicles, attachments, and more.
Most tangible property used in daily business, including software, qualifies for Section 179 deduction. To qualify for the deduction, however, the equipment must be purchased and put into service by midnight on December 31, 2016. It applies to new and used equipment (purchased, financed, or leased). Businesses that purchase more than $2 million in equipment during the year will see the deduction reduced dollar for every dollar over the $2 million limit.
The two examples* below were created using the official Section 179 deduction calculator. They assume a 35 percent tax bracket:
Example 1 — A contractor who purchases two Lonking CDM6235 excavators ($136,542 each) and a Shantui SD32DQ 345-horsepower dozer ($432,148) starts out with a total purchase price of $705,232. Using the Section 179 deduction, a 50 percent bonus depreciation for the amount above the deduction limit, and the normal first year depreciation, the contractor saves nearly $218,100. That’s 31 percent.
Example 2 — The owner of a batch plant purchases a 4.0-yard Lonking CDM858N from IronDirect for $152,114. The full purchase amount is deducted, generating cash savings of nearly $53,240. That’s 35 percent off the purchase price.
On top of the Section 179 deduction, business owners are also able to apply a 50 percent bonus depreciation on the cost of equipment acquired and put in service in 2016 and 2017. The bonus depreciation drops to 40 percent in 2018 and 30 percent in 2019. The bonus depreciation only applies to new equipment.
*Savings are estimated. Please refer to professional tax advisers for guidance.
Joe Hanneman, Director of Industry Engagement for IronDirect.