The "Tax Relief Act of 2010," signed 12/17/2010, extends increased Section 179 expensing for small business equipment purchases made in 2011 and 2012, as well as a 100% bonus depreciation allowance for new machine tools and other equipment ordered and placed into service during 2011. The bonus depreciation allowance returns to 50% in 2012.
The Section 179 deduction limit remains at $500,000 for new and used equipment purchases made and placed into service in 2011. That amount will decrease to $125,000 in 2012. In addition, the cap on how much equipment can be purchased before the deduction begins to phase out remains at $2,000,000. In 2012, that amount will drop to $500,000.
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Section 179 Boost for Small Businesses Small businesses whose total equipment purchases do not exceed $2,000,000 in 2011 (or $500,000 in 2012) can expense the first $500,000 for 2011 ($125,000 for 2012). |
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| 2011 | 2012 | |
| Equipment Purchases | $600,000 | $600,000 |
| Section 179 Deduction | $500,000 | $25,000* |
| Bonus Depreciation Deduction on remaining amount** | $100,000 | $287,500 |
| Regular First Year Depreciation Deduction on remaining amount | — |
$41,070 |
| Total First Year Deduction | $600,000 | $353,570 |
| Tax Savings (assuming 35% tax rate) | $210,000 | $123,750 |
| Cost of Equipment After Tax Savings | $390,000 | $476,250 |
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* The deduction begins to phase out dollar-for-dollar after total purchases exceed $500,000. ** The bonus depreciation is 100% for the 2011 tax year and 50% for the 2012 tax year. |
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