Tax Incentives - Gas Station Equipment Financing & Leasing
Did you know how Section 179 and Bonus Depreciation may allow you to immediately capture depreciation capital expenditures from gas station equipment financing and leasing?
Business owners usually prefer to deduct equipment cost in a single tax year, rather than a little at a time over a number of years. These deductions are known by their sections in the tax code, Section 179 and Bonus Depreciation deductions. These benefits have been significantly enhanced by the 2017 Tax Cuts and Jobs Act, which was approved by Congress and signed by the President in December 2017.
How Section 179 & Equipment Financing & Leasing Go Hand in Hand
Under Section 179, businesses that spend up to $1,000,000 a year on qualified equipment may write-off this off in the current tax year. The government in December 2017 passed legislation making this a permanent part of the tax code and indexing the deduction to inflation. The rules are designed to encourage small businesses to invest in the equipment they need to grow and operate their businesses. Section 179 may apply to convenience store equipment such as gas pumps, EMV upgrade kits, DEF dispensers and underground storage tank upgrades. For a full listing of applicable equipment and to understand how this may benefit your business, please contact your accountant and your Patriot Capital representative.
Virtually all retail and commercial petroleum equipment qualify for a Section 179 deduction of up to $1,000,000.
Section 179 Expensing
- $1,000,000 expensing for annual capital equipment purchases.
- Property can be new or used
- The property must be placed in service by December 31 to qualify for current year Section 179 tax savings. For example, in 2018 you must have your equipment installed and in service by Dec. 31, 2018, to qualify for Section 179 in 2018.
Combining the benefits of Section 179 tax incentives with the cash flow benefits of equipment financing and leasing can help you achieve your operating goals. Please contact your tax advisor to learn about the specific tax benefits that your C-Store may realize from Section 179 and Bonus Depreciation. Patriot Capital does not provide tax advice, examples provided are for illustration only.
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Opinion: Making the Most of Tax Reform
With the 2017 Tax Reform Act now the law of the land, we have fresh clarity on how investing in capital goods will be handled. In addition to lower tax rates for many companies, the opportunities to capture immediate benefits from investment in new equipment have significantly increased in 2018.
Key to that insight is the concept of bonus depreciation. Bonus depreciation originated during the economic crisis as an incentive for businesses to invest in new equipment by allowing depreciation deductions to be partially or fully captured in the tax year of purchase, rather than over the useful life of the equipment. With the 2017 tax reform, these incentives have been expanded. Here’s how:
The most significant changes in bonus depreciation are the removal of a previous $2 million cap and a 50% deduction allowance. With the new tax bill, most equipment placed into service after Sept. 27, 2017, can qualify for 100% deduction under this tax treatment, potentially creating cash-flow benefits. Additionally, bonus depreciation may now be claimed for used equipment. The provisions are in full effect (100% deduction) through Dec. 31, 2022, and are scheduled to phase out through Dec. 31, 2026.
In the 2018 tax year, a permanent increase in the annual deduction from $500,000 to $1 million will take effect. Section 179 covers both new and used equipment, including most fueling and convenience-store equipment. Section 179-eligible equipment has been expanded to include improvements to nonresidential property (HVAC, roofs, etc). Additionally, the maximum eligible amount of $1 million will increase based on an inflation index starting in 2019.
With the tax reform, we are at the intersection of several beneficial points in the economic cycle. First, interest rates are still low compared to historic norms. The Fed has signaled its intent to raise rates three times in 2018, and expectations are for continued rate increases in 2019. As these increases come into the market, borrowing costs for operating lines of credit and other variable rate financing tools will increase.
We have also had a period of low inflation for the past couple of years. If the tax act has its desired effect of increasing economic activity, it’s likely that manufacturers will see an opportunity to raise prices based on this stronger demand. This may be especially true for gas pumps, with very strong demand forecast for EMV pump upgrades between now and the EMV liability shift in 2020.
The third consideration is rising labor costs. With a market that was generally considered at or near full employment in 2017, any GDP growth will result in pressure on wages. Increases in wages will move into the economy in the form of higher technician costs for installing new equipment and higher prices for equipment.
Combining the 2017 Tax Reform Act benefits with today’s low-inflation and low-interest-rate environment may make 2018 a good time to invest in upgrading your retail sites.
Please consult your tax professional for advice related to your specific situation. Patriot Capital does not provide tax or accounting advice.