Time is running out... Act now to take advantage of Tax Relief Act

Bonus depreciation

The Capital Depreciation Bonus increased to 50% on eligible new equipment purchased and placed into service after May 5, 2003, and before January 1, 2005. Taxpayers can deduct an additional 50% of the cost of new equipment in the first year of ownership. Standard depreciation guidelines apply to the remaining 50%.

Here's an example of how it works: A person purchases a new machine for $100,000 in 2004 with a useful life of seven years. In 2004, he can write off $55,355. This is the sum of the 50% bonus and the regular depreciation allowance on the remaining amount. (See chart.) If he is in a 40% tax bracket, his tax liability for 2004 is $17,858 lower than it would have been without the bonus depreciation.

Trade-ins can also reduce tax liability through the new Capital Depreciation Bonus. If the transaction includes a trade-in, the depreciable basis is equal to the net tax value of the trade plus the trade difference. For example, if the trade-in is a used tractor with a net tax value of $50,000, and the total price includes the used tractor plus $20,000, the depreciable basis will be $70,000, which is the net tax value of the trade-in ($50,000) plus the trade difference ($20,000).

Expense deduction increased

The Section 179 Expense Deduction, increased from $25,000 to $100,000 on qualifying new or used equipment purchased and placed into service in taxable years beginning 2003, 2004, 2005. The phase-out limit for this deduction increased from $200,000 to $400,000.

The Section 179 Expense Deduction also allows a qualified buyer to write down bigger amounts, faster. Using this same example of the $100,000 piece of equipment, 100% of that equipment's cost can be written off in year one. In addition, the buyer can now spend up to $400,000 – twice the previous limit–on eligible equipment before the dollar-for-dollar deduction phase-out kicks in. Current provisions call for the $100,000 deduction to be in effect through 2005, after which time it reverts to $25,000.

Both of these provisions are in effect now and are retroactive to their start date of May 5, 2003.

To find out how you can benefit from the Jobs and Growth Tax Relief Reconciliation Act of 2003, contact your tax advisor. If you can take advantage of these benefits, your New Holland dealer can help you select the right equipment and a retail loan financing option from New Holland Credit that will provide the best value for total cost of ownership.