Enterprise zone credits could be a valuable benefit for Colorado businesses, but there are federal tax breaks they should consider, too.
Section 179. When companies purchase new or used property, such as equipment or software, they can deduct the full cost of the investment up to $500,000 the same year. If overall investment in the business exceeds $2 million, the amount of the deduction is reduced by the same amount. That means businesses that spend more than $2.5 million on investments are ineligible for the deduction. That’s by design, to make sure the credit benefits small businesses.
Bonus depreciation. For new equipment or software purchased in 2017, businesses can take a 50% deduction on the cost of the investments. The Protecting Americans from Tax Hikes (PATH) Act of 2015 extended bonus depreciation through the 2019 tax year. Businesses can take a 50% deduction on capital expenses made in 2017; the rate will drop to 40% in 2018 and 30% in 2019.
Businesses can claim both of these credits, but they have to apply the Section 179 deduction first.