On December 18, 2015, the President signed the "Protecting Americans from Tax Hikes Act of 2015" (PATH Act) passed by Congress. While the PATH Act has far reaching benefits for consumers and business, there are special advantages to fleet owners. For the first time in many years, the government extended these tax breaks for several years which will allow businesses to plan ahead and capture these valuable tax benefits.
For the smaller fleet owner that purchases or finances equipment, Section 179 of the IRS tax code can be very helpful. It is a great tax savings tool as it allows you to deduct the 100% of the purchase price of your equipment from your gross income, up to a limit of $500,000 annually for the years 2015, 2016 and 2017. This benefit is targeted to the small business owner as it is phased out on a dollar-for-dollar basis beginning at $2 million in annual qualifying equipment purchases and is completely eliminated above $2.5 million. Section 179 was extended permanently (or at least until further notice).
Businesses that acquire new equipment will benefit from Accelerated Bonus Depreciation since it allows an additional 50 percent of the cost of equipment to be depreciated during the first year of service. Also, for the first time in many years, the benefit was extended through 2017 at that same rate, and then beyond through 2018 at 40% and 2019 at 30%. Bonus depreciation can result in long-term tax savings as the savings are spread out over several years. Used equipment or equipment used outside of the US is excluded.
Fleet owners are able to capture the benefit of these tax savings regardless of whether they purchase the equipment and take the tax depreciation themselves, or if they lease their equipment from a lessor that can utilize the tax benefits. If you lease your equipment, your leasing company will be the beneficiary of this change and will pass the savings on to you in the form of lower lease payments. In addition to lower lease payments, leasing allows you to refresh your fleet much quicker. Replacing your tractors every three to four years will provide savings with better fuel economy (as required by new Federal mandates), lower maintenance and repair costs, and improved up-time and productivity. And in this competitive market for drivers, they will be much happier driving newer tractors with the latest technology and safety equipment reduces driver turnover estimated at a cost of $6,500 per driver.
Whether you buy, finance or lease, the bottom line is that fleet owners will benefit from these tax breaks and while the tax considerations are important, this is just one more variable in your overall total cost of ownership of your transportation assets. There are a number of tangible costs to consider – sales taxes, the cost of the asset, maintenance and repair costs, productivity, and downtime – that all need to be monitored, measured and analyzed. In addition, intangible costs like down timer, safety, and corporate image should be evaluated as well. Now might be a good time to review how all of these factors impact the operation and cost of your fleet.
