Surely there is a CPA among us who can explain this a lot better than I did.
I am a CPA and I shall attempt to clarify this somewhat, but don't call me Shirly.
The election to expense property in one year is called a section 179 election. As you pointed out Pondsea, effective January 1, 2008 as business can elect to expense up to $250,000 in qualifying fixed asset purchases in one year provided that other criteria is met (the equipment must be used in a trade or business, the 179 deduction cannot be used to create or increase a net loss, there is a limitation on the total investment in one year, the equipment can't be purchased on ground hog day) [ok I made that part up]. In order to qualify for the section 179 election the equipment
DOES NOT have to be new.
I probably muddied it all up, but here is an example: If you bought a new tractor for your business for $25,000, assuming a 35% tax bracket, the effective cost of the new tractor is $16,250. So you can see why a used tractor price would have to adjust this year to reflect that difference. In other words, why would I buy your used one for 15K if I could buy a new one for 16K?
You got half of the answer. Assuming that all the qualifications are met and that you can use the Section 179 deduction on either new or used equipment. So, using your suggested tax bracket, the $15,000 used equipment would have an effective cost of $9,750.
Additionally I wouldn't suggest using a 35% tax bracket since for 2008 this bracket doesn't begin until you reach taxable income of $357,701. Most people will fall into either the 25% or 28% bracket.
Part of the new tax law under the Economic Stimulus Act of 2008 is the return of an old friend "Bonus Depreciation." [do I need more friends or what?] Under this method 50% of an asset can be expensed in the first year. To qualify for this method the equipment MUST be "original use property" (new). Once again there are qualifications that must be met and limitations and other annoyances.
Did this help or make things worse?
Oh and as an also and besides for those of you that have farm schedules (raising fish for sale is considered to raising livestock which is reflected on a farm schedule) the recently enacted "Heartland, Habitat, Harvest, and Horticulture Act of 2008" has some new deductions for soil conservation expenditures, water conservation expenditures and endangered species recovery expenditures. This is for expenses incurred after December 31, 2008 (next year). Assuming the expenditures otherwise qualify it may be possible to deduct expenses related to "leveling, grading, terracing, contour furrowing, drainage ditches,
earthen dams, watercourses, outlets,
ponds, eradication of brush and the planting of windbreaks." If you have a farm schedule and are planning some of these expenses check with your CPA (or tractor salesman) about being able to deduct some of these expenses. Through advanced planning you might be able to ensure that you meet the required criteria.
And now, what you've all been waiting for, my disclaimer:
The information provided above is for informational and entertainment purposes only and should not be considered as, nor relied upon as tax advice. Check with your tax preparer or tractor salesman to see if you meet the criteria for any deduction discussed above. JHAP is NOT an expert in tax law as it relates to farm schedules so don't ask him any questions about either tax law as it relates to a farm or farm law as it relates to taxes. JHAP grew up in the city and therefore doesn't know squat about farms, he did regularly watch Green Acres as a child so he could probably differentiate between a goat and a sheep but don't rely on it. Tax code is available freely over the internet however prolonged exposure to tax code can cause nausea, projectile vomiting and overall discomfort, displeasure, disassociation, disbelief, discontent, disharmony, disheveling, disgust, disloyalty, disobediance, disquietude and many other words that start with dis. Four out of five doctors recommend avoiding any prolonged exposure to Internal Revenue Code while three of seven dentists actually enjoy reading tax code. This makes sense when you think about it because most folks don't like visits with either their tax preparer or their dentist. JHAP is a CPA that is licensed to practice in the State of California even though he resides in a perpetual State of Denial. JHAP will continue to practice until he gets better at it. The opinions expressed by JHAP are not necessarily those of Pond Boss's management, moderators, advertisers, members at large, members at small, or even medium sized members.
