Brand New Powerful Tax Incentive for New Equipment Orders
 Congress has just passed President Bush’s jobs and economic growth tax relief bill, which contains a new 50% expensing allowance for machine tools and other equipment ordered between 5/06/03 and 12/31/04 and placed in service by 12/31/04. This replaces the temporary 30% expensing allowance enacted in 2002.
Here is how the new provision works for you and your customers:
Let’s assume that the Peekless KeyHole Co.* orders a new machine tool costing $100,000. Peekless can write-off 57% of the asset in the first year and 69% over two years (compared with14% and 39% under the old law). This adds up to a first year tax cut of $15,050 on a $100,000 machine.
| OLD LAW - $100,000 Machine (pre-2002 temporary change) |
| 1st year Deduction 14% - $14,000 |
1st year Tax Saving |
$4,900 |
| NEW LAW - $100,000 Machine |
| 1st year Deduction 57% - $57,000 |
1st year Tax Saving |
$19,950 |
| IMPROVEMENT OVER OLD LAW |
| 1st year Deduction 43% - $43,000 |
Tax Cut |
$15,050 |
| SPECIAL RULE FOR SMALL BUSINESSES |
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Small businesses (those whose equipment purchases of all kinds do not exceed $400,000) get to expense the first $100,000 until 12/31/05. The 50% expensing allowance can be taken on the remaining basis of the machine. In other words, a qualifying small business that buys a $100,000 machine can expense it all in the first year. A $200,000 machine could qualify for a $157,000* first year deduction (78.5 % of the asset); and a $300,000 machine could qualify for a $214,000* first year deduction (71.3% of the asset). |
* Example assumes customer is in 7-year asset depreciation class. For customers in the five-year class, the first year tax saving is $21,000 on a $100,000 machine, and the tax cut is $14,000.
For more information, contact James H. Mack, Vice President, Tax & Economic Policy, AMT, at jmack@amtonline.org or 703/827-5225.
Fact sheet produced by AMT-The Association For Manufacturing Technology.
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