IRS Section 179 Explained for Gas Station and C-Store Owners
Did you know that Section 179 and Bonus Depreciation may allow you to deduct equipment cost in a single tax year, rather than a little at a time over a number of years? The opportunities to capture immediate benefits from investment in new equipment have significantly increased in 2018.
What is the Section 179 deduction?
Section 179 of the IRS tax code was created by the U.S. government to encourage businesses to buy equipment and invest in themselves. It might seem complicated at first, but in reality, it’s pretty simple. If you buy a piece of qualifying equipment, Section 179 allows you to deduct the full purchase price from your gross income. Businesses of any size can benefit from Section 179.
How does Section 179 work?
In the past, businesses who bought qualifying equipment could write off a little at a time due to depreciation. Not any longer. Under Section 179, businesses can write off the entire purchase price of equipment the year they buy it. That means that you can buy the equipment you need now, and receive the tax savings during the current tax year. Up to $1,000,000 of qualifying equipment can be written off during the 2018 tax year. The deduction phases out after $2,500,000 of equipment are purchased, and the deduction is capped at $3,500,000 in purchases.
What types of equipment purchases are considered deductible under Section 179?
Almost all types of “business equipment” that your company buys or finances will qualify for the Section 179 deduction, as long as it is used for business purposes more than 50 percent of the time. You may finance equipment and still take the Section 179 deduction.
For gas station and C-Store owners, the following types of equipment are deductible:
- EMV equipment upgrades, including EMV pumps and point-of-sale upgrades
- In-store equipment such as beer caves or fixtures
- Energy efficiency improvements, including LED lighting and HVAC equipment
- Commercial fueling equipment, including pumps and tanks
- DEF and AdBlue equipment for truck-stops and commercial fleet operations
What Is Bonus Depreciation?
In addition to the Section 179 deduction, there is a “Bonus Depreciation” provision in full effect (100 percent deduction) through December 31, 2022. It expanded the qualified property to include both new and used equipment purchases (it was previously set at 50 percent of new equipment only). This is useful to very large businesses spending more than $1,000,000 in qualifying equipment, potentially creating cash flow benefits. The deduction percentage is gradually phased out between 2023 and 2026.
How does Section 179 Impact Gas Station and C-Store Owners?
Combining these tax benefits with today’s low-interest rate environment may make 2018 a great time for gas station owners to invest in upgrading sites for EMV payment at the pump, underground storage tank (UST) improvements or adding DEF or other alternative fuels, including E-85. C-store owners might also consider QSR (quick-serve restaurant) or other convenience store equipment. Capturing 100 percent of the available depreciation in the first year is a strong incentive to act now.
Is upgrading your pumps now a good investment? Input your c-store’s numbers in our online calculator to see what your EMV pump investment return could be.
As always, you should consult with your financial advisor to ensure any of the incentives are appropriate or applicable to your business.
Patriot Capital, a division of State Bank and Trust Company, does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on, for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.