The
recently passed Jobs and Growth Tax Relief Reconciliation Act
of 2003 contains two very important provisions that directly affect
equipment acquisition planning and should be a perfect fit for
golf course owners!
SECTION 179
DIRECT EXPENSE
The new law
quadruples the dollar amount that can be deducted under Section
179 from $25,000 to $100,000 for property placed in service in
tax years 2003, 2004, and 2005. In addition, the trigger point
for beginning the phase out of the deductible amount has been
increased from $200,000 to $400,000 for 2003, 2004, and 2005.
This change
would allow a course that has invested less than $400,000 in total
in new equipment to expense up to $100,000 in the year of acquisition,
provided that net income is equal to or greater than the amount
of the deduction.
"BONUS
DEPRECIATION"
The new law
also increases first year depreciation to 50 percent of the adjusted
basis of qualifying property. Qualified property is defined as:
- Must be
new equipment
- Placed
in service after May 5, 2003 and before January 1, 2005
- For MACRS
eligible property with a recovery period of less than 20 years
- There
was not a binding written contract for the acquisition before
May 6, 2003
In addition
to the enhanced "Bonus Depreciation" and the new Section
179 Direct Expense amounts, regular tax depreciation (MACRS) also
applies to the adjusted basis.
COMBINING
THESE TAX DEDUCTION PROVISIONS
Let's say
you want to replace a significant portion of your turf maintenance
equipment to keep your course in its highly competitive condition.
The equipment investment is estimated to be $350,000, and the
total investment for the course this year will be less than $400,000.
Here's how these combined tax provisions can help.
CONCLUSION
Given
the tax benefits that have been provided, and which expire at
the end of 2004 and 2005, and interest rates lower than they have
generally been in 40 years, there may never be a better time to
make those equipment investments that will keep your course competitive
and generating the revenue and cash flow required for continuing
success.
Consult your
tax / accounting advisor or have your business manager talk with
VGM Financial Services on how to put a multiple year acquisition
strategy in place that will optimize these provisions in 2003,
2004 and 2005, and minimize your after tax cost.
