A recently passed law will allow manufacturers to take a deduction of up to $125,000 in their 2007 taxes for qualified machinery purchased during the 2007 taxable year.
The Section 179 Allowance was increased from $112,000 to $125,000 under the recently passed Small Business Work Opportunity Act, said Cindy Hockenberry, a tax information analyst with the National Association of Tax Professionals. The allowance covers certain depreciable assets such as machinery.
"If a company buys a piece of machinery for $200,000, they can write off the first $125,000, " Hockenberry said. She added that the remaining cost could then be depreciated over the next seven years.
The law, however, does have two major clauses that may disqualify companies from receiving the full benefits of the tax break. If a business is running at a loss, the deduction would have to be carried over to the next year, Hockenberry said.
Also, if a company spends more than $500,000 on machinery in 2007, the possible deduction is reduced by every dollar over $500,000 that the company spends. For example, if a business buys $550,000 in machinery during 2007, which is $50,000 more than the limit, then they would only be eligible for a $75,000 deduction ($125,000 - $50,000). If a company spends $625,000 or more, they are not eligible for any deduction under the Section 179 Allowance.
Companies should talk to their tax consultants to see if, and how, they qualify for this allowance, Hockenberry said.
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