Section 179 Provides Significant Tax Breaks on Equipment Purchases
Industrial facilities that are considering the purchase of automation, robotic or compressed air equipment should be aware of the U.S. Internal Revenue Service (IRS) Section 179 Tax Deduction as it encourages businesses to invest in themselves by permitting an immediate and significant tax break on qualifying purchases for the 2023 tax year.
Section 179 Explained
Section 179 is an immediate expense deduction that businesses can take for the purchase of equipment instead of depreciating the asset over a period of time. In the past, when a business purchased equipment, the machinery was typically written off a little at a time as depreciation. This meant that if a company purchased a $100,000 piece of equipment, they could “depreciate” a percentage of the total purchase price over a set time period (depending on the tax law at the time). However, for the 2023 tax year, Section 179 will allow a business to write off the entire purchase price of qualifying equipment for the current tax year.
This meant that if a company purchased a $100,000 piece of equipment, they could “depreciate” a percentage of the total purchase price over a set time period (depending on the tax law at the time).
However, for the 2023 tax year, Section 179 will allow a business to write off the entire purchase price of qualifying equipment for the current tax year.
There are some caveats: Qualifying equipment must be purchased (or financed) and put into service between January 1, 2023 and December 31, 2023. Also, the deduction limit is $1,160,000 and the total amount of the equipment purchased is capped at $2,890,000. For purchases greater than $2,890,000, the deduction will begin to phase out on a dollar-for-dollar basis. The entire deduction will cap out with a $4,050,000 or greater purchase.
Another benefit of Section 179 is the addition of bonus depreciation, which has been written into the code for purchases made in 2023. This is especially beneficial to businesses buying machinery in amounts that exceed the Section 179 limit, allowing 80% of any new equipment purchased to be deducted in 2023. When applying the tax break, Section 179 is usually taken first, followed by the bonus depreciation.
The following is an example of a 2023 Section 179 calculation:
| Qualifying Equipment Purchase Made in 2023 | $1,260,000 |
| First Year Write Off (maximum of $1,160,000 in 2023) | $1,160,000 |
| 80% Bonus First Year Depreciation (80% of the remaining $100,000) | $80,000 |
| Total First Year Deduction ($1,160,000 + $80,000) | $1,240,000 |
| Cash Savings ($1,240,000 x 21% tax rate) | $260,400 |
| Equipment Cost After Tax (assumed 21% tax bracket) | $999,600 |
How Section 179 Helps Businesses
Obviously, the immediate tax write off and depreciation are financially beneficial, but Section 179 has made it easier for companies to purchase the equipment that they need right now, rather than waiting. As a matter of fact, Section 179 encourages companies to invest in themselves and grow their business via the purchase of new equipment thanks to the significant tax relief on qualifying equipment.
Qualifying Equipment
Qualifying equipment typically includes machines and manufacturing equipment, computers and software and other items such vehicles and office equipment. Robotic solutions from suppliers such as Techman Robot, Kawasaki, Staubli and IAI are likely to qualify for Section 179. Likewise, compressed air equipment from suppliers such as Quincy, Gardner Denver, Powerex, Zeks and Nano may also qualify for Section 179.
In addition to receiving the financial benefits from Section 179, investing in new equipment can lead to improvements to the bottom line. For example, investing in compressed air equipment may increase energy efficiency and sustainability efforts, while also improving product quality. And, purchasing automation and robotic solutions can help enhance productivity, throughput capacity and process efficiency, while also offsetting labor shortages and increasing facility safety. And, since the current Section 179 tax code serves to stimulate both the economy and the manufacturing sector, the timing couldn’t be better to purchase the equipment needed to grow or improve your facility and business.
For more information on how Section 179 can help your business invest in itself through the purchase of compressed air equipment or automated robotic solutions that will foster productivity and efficiency, please contact JHFOSTER.