Important Updates to Bonus Depreciation for 2018 Equipment Purchases

Bonus depreciation can offer a valuable opportunity for both new and used construction equipment purchases

If you're considering a purchase before the end of 2018, investigate how the changes in bonus depreciation may apply to the acquisition.
If you're considering a purchase before the end of 2018, investigate how the changes in bonus depreciation may apply to the acquisition.

As we enter the fourth quarter and the year-end quickly approaches, many businesses are considering purchases. Knowing about available tax incentives is an important aspect of the decision.

In the past, Section 179 has gone hand-in-hand with bonus depreciation as valuable tax incentives. This year, changes have been made to Section 179 and bonus depreciation. With the changes, the two are no longer used together, but rather can be looked at as separate opportunities, depending on your unique needs.

Looking strictly at bonus depreciation, following are the two key updates made in 2018 and what they mean heading into year-end:

Percentage Increase: Previously, bonus depreciation could be applied on a qualified purchase at 50%. The new law increases the percentage to 100%. Bonus depreciation is expected to stay at 100% for five years, then begin to phase down in the subsequent years.

As a result, companies may choose to apply bonus depreciation to purchases and forgo the Section 179 deduction. However, bonus depreciation rules can vary per state, so it’s a good idea to check with an accountant or trusted tax advisor to determine the best option.

Used Equipment: Perhaps the most significant change to bonus depreciation is that used equipment is now eligible. In the past, the Section 179 deduction could be applied to used equipment, but bonus depreciation could not. This is an exciting change for those who have been thinking about adding used machines to a fleet.

Along with the healthy state of used equipment and values, bonus depreciation eligibility makes now an ideal time to move ahead with used equipment purchases. As stated earlier, all business owners should consult their accountant or trusted tax advisor before deciding to make purchases and take advantage of the bonus depreciation incentive.

If the decision is made to make a purchase, look to a trusted dealer and one that has a robust selection of both new and used equipment. The dealership’s experts not only will help find the right machine to fit needs, they will offer the service and support that’s still needed long after the sale and bonus depreciation has been applied. 

Dennis Howard is vice president of Fleet and Remarketing with RDO Equipment Co. and based in San Antonio, TX.

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