Government Affairs: Huge Changes in the new “Tax Cuts and Jobs Act”

(Published on 1/11/18) Written by Craig L. Ward, MDNA Vice President and Government Affairs Committee Chairman.

Here’s the MDNA low-down on “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (commonly known as the “Tax Cuts and Jobs Act”) and how it affects our used metalworking and capital equipment market.

As many of our longtime members know, the MDNA’s Government Affairs Committee has followed, reported on and lent its voice in support of any legislation that has a direct impact on our members and newly passed Tax Reform has a big impact.

Changes Effect both Bonus Depreciation and Section 179 Expensing.  Please remember these are two distinctly different processes for companies to handle the tax ramifications of investing in equipment purchases.

Bonus Depreciation – Previously Bonus Depreciation was not an option for purchasers of our used machinery and capital equipment because the law stipulated that the original use of the property had to begin with the taxpayer (meaning used property wouldn’t qualify for the bonus depreciation opportunity).

Under the new law, Section 168(k) was rewritten so that now the only requirement is that the property was not used by the taxpayer at any time prior to its acquisition, which expands bonus depreciation to used machinery and capital equipment, as well other qualifying property. The Act also enables purchasers of used machinery and capital equipment to take a first-year deduction for 100% of the cost basis for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.  The law calls for reduction in the percentage that may be expensed for property placed in service after Dec. 31, 2022.

Section 179 Expensing – In lieu of taking bonus depreciation your customers can expense used machinery or capital equipment, placed in service in tax years beginning after Dec. 31, 2017, under Code Sec. 179 up to $1 million, and the phase-out threshold amount is increased to $2.5 million.  And for tax years beginning after 2018, these amounts will be indexed for inflation. This is double the previous limitation.

Blumberg Tax published an online “Tax Reform Road Map” that is available for free to anyone that signs up at their website.   It is by far one of the best “plain English” summaries on the web.

There are also notable changes that may impact you or your customers if you or they are a corporate taxpayer:

  • New corporate rate is a flat 21% effective 1/1/2018- any fiscal year taxpayers will need to prorate their tax rate for the fiscal year that includes 1/1/2018
  • New rules for Net Operating Losses generated in tax years beginning after 12/31/2017
  • AMT has been repeals
  • Section 199 for domestic manufacturing deduction has been repealed for tax years beginning after 12/31/2017
  • Further limitation to the deductibility of meals & entertainment expenses
  • Business interest expense deductibility is limited to interest income plus 30% of taxable income before interest, depreciation and amortization and tax expense
  • Certain legal settlement costs are not deductible for tax purposes
  • Significant changes have been enacted for corporations with international operations, including new regimes for Global Intangible Low-Taxed Income (GILTI) and Base Erosion Anti-Abuse Tax (BEAT). Additionally, a transition tax is imposed for previously deferred earnings and profits overseas.

Likewise, many of these items have implications for entities that operate as partnerships. There is also a change to the way individual partners are taxed on flow through income.

**This is not tax advice and everyone should consult their own tax experts to evaluate their individual situations.