You’ve likely heard of Section 179 of the U.S. tax code because of the huge break thatit offers small businesses purchasing equipment. But did you know it applies to financed equipment?
Section 179 Qualified Financing is a financial strategy that allows your business to deduct the full purchase price of qualifying equipment financed during the tax year. This significantly reduces your overall tax burden.
Who qualifies for Section 179?
All businesses that spend up to $4,050,000 to purchase, finance, and/or lease new or used business equipment during tax year 2023. Note, the deduction begins to phase out on a dollar-for-dollar basis after $2,890,000 is spent by a given business.
What qualifies for the deduction?
Basically, any equipment or software that’s used more than 50% for business and is used within the tax year qualifies for the deduction. This includes the following:*
- Machines and manufacturing equipment
- Personal property that is used for the business
- Computers and software
- Office furniture and equipment
- Vehicles with a GVWR over 14,000 pounds (7 tons) OR a vehicle modified for non personal use.
Your tax savings could exceed your first year of financing payments!
Because this IRS tax code allows you to deduct the full purchase price on the equipment in one year, you could potentially have a net gain after the first year of owing your equipment. Consider this example:
Jim finances $75,000 in heavy equipment
· His total first year payments for equipment financing are $13,200
· His income puts him in the 35% tax bracket
· With a Section 179 deduction he gets back $26,250
Jim’s cost of equipment after deduction: $48,750 (.35 x $75,000)
Jim’s first year gain after taxes and equipment payments:$13,050 ($26,250- $13,200)
This is a high-level example of the type of savings asmall business can reap. There are many different aspects of Section 179 thatmay apply depending on the nature of your business and how you use theequipment you purchase. You can find rules for the Section 179 deduction onpage 15 of IRS Publication 946.
Apex Commercial Capital is here to help: We are a full-service lender focused on providing commercial mortgages and equipment financing to small businesses. We understand that the borrower is more than a credit score – we consider all the relevant financial information when reviewing a loan request, looking beyond the numbers to understand each business owner's objectives in determining how we can best work together to achieve them. Call (800) 262-APEX today to talk with our team of specialists.
*Be sure to contact your tax specialist regarding tax advantages and deductibility of equipment before you make a purchase.