A Good Time to Buy Business Equipment

Under Tax Act of 2003 businesses are encouraged to purchase business equipment. Businesses can take a current deduction for their purchases by taking advantage of the increased dollar limitation on expensing property and 30% or 50% first-year bonus depreciation

Increased Dollar Limitation for Expensing Section 179 Property

Instead of recovering the cost of property through depreciation deductions over a number of years, taxpayers may elect to deduct all or a portion of the cost of new or used depreciable tangible property purchased for use in a trade or business.

The aggregate amount that may be expensed each year has been increased from $25,000 to $100,000 for tax years beginning in 2003, 2004, or 2005 (but will return to $25,000 for subsequent years).

The $100,000 dollar amount will be adjusted for inflation in 2004 and 2005.

Reduction in the Investment Limitation on the Cost of Property That Can Be Expensed

The dollar limitation on expensing has to be reduced by the amount by which the cost of qualifying property placed in service during the year exceeds a specified amount.
The point at which the annual dollar limitation has to be reduced has been increased from $200,000 to $400,000 for tax years beginning in 2003, 2004, and 2005 (and will return to $200,000 for subsequent years).
The $400,000 amount will be adjusted for inflation in 2004 and 2005.

Planning Opportunity: Picking Which Assets to Expense

The new tax law's increase to $100,000 of the amount of assets that can be expensed makes the strategy of picking particular assets to expense even more worthwhile. Usually, it is best to expense assets with the longest recovery period (i.e., the number of years over which property must be depreciated if not expensed)

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