like-kind exchange (LKE) program allows a business to postpone the tax hit on sales of used equipment in anticipation of buying replacement equipment, and each year more business owners seize upon the cash-flow benefits available via a 1031 like-kind exchange strategy, recognizing that reinvesting money into their business beats sending it to the government in the form of unnecessary taxes.
The leasing industry is no different than any other type of business in which cash flow and residual value of equipment drive profitability and ROI. Whether you are managing an operating lease or a tax lease of heavy equipment, trucks, cars, office equipment, etc., you could face a tax rate of 40% on the
gains from the sales proceeds of the equipment coming off of lease. Leasing companies that can infuse a
like-kind exchange (LKE) cash benefit into the equation can provide heightened value to their portfolios.
Mobile storage and mobile temporary housing companies are discovering the cash benefits associated with 1031
like-kind exchange programs that the heavy equipment, trucking, car rental, and leasing companies have been using for years. The advantages that can be garnered by redirecting cash into new structure purchases, as opposed to sending the money to the IRS, make 1031 exchanges an attractive option.
Finally, some tax certainty from Washington regarding
bonus depreciation! Though a tax overhaul seems relatively imminent, the five-year bonus extension sure beats the annual nail-biting surrounding last minute actions by Congress. More realistic and accurate strategic planning and tax risk assessment can now begin.
Because we live in such a rapidly changing business environment, I find that people enjoy input and feedback from other business owners on matters of tax and finance. What works and why? What ideas and strategies am I missing? Is there a reason other business owners are adopting certain strategies that I have not considered? Should I consider them now?
Companies across America utilize 1031
like-kind exchanges (LKEs) and
like-kind exchange programs to generate cash benefits that fuel their growth and help finance new equipment purchases. Last year alone, our clients enjoyed over $5 billion in cash flow benefits with which they purchased new equipment. Whether you’re selling a single piece of equipment or hundreds, the cash benefits of LKEs can be a game-changer for your business.
"Should I take (or wait for)
bonus depreciation or should I utilize a 1031
like-kind exchange strategy?" Business owners have asked themselves this question since the passage of the Job Creation and Worker Assistance Act of 2002. Bonus depreciation of 30%-50% - and even 100% - has been a part of our tax landscape for over 12 years, and while the jury is still out on whether it has a stimulus effect on the economy, there is no question that its availability has enabled business owners to forestall paying taxes.
There is an old adage that states “Just because you can do something-doesn’t mean you should.” This sage advice certainly applies to choosing a
qualified intermediary to facilitate a 1031
like-kind exchange. The use of a qualified intermediary is essential to completing a successful
1031 exchange because, while the process of completing an exchange is straightforward, the rules are complicated and loaded with potential pitfalls for the
exchanger if the exchange is not properly prepared.
Bonus Depreciation having expired, 2015 is going to present many car rental companies with significant and potentially unexpected tax liability. Car rental companies are uniquely exposed to greater taxes post-Bonus for a few reasons:
Rental cars are normally held between 12-18 months before selling
Absent Bonus Depreciation, the tax basis is relatively close to the fair market value exposing only a minimal gain.
With Bonus Depreciation, car rental companies are left with around a 30% basis on a 90% resale value, dramatically increasing the gain and the taxes owed.
In 2015, American heavy equipment companies will be subject to the many pressures associated with the purchase and use of Tier 4 equipment. Tier regulations require manufacturers to adhere to emissions regulations in the production of equipment engines. The EPA introduced Tier 4 in 2004 and designated a ramp-up period from 2008-2015 so that manufacturers could phase-in engine design changes that would meet the stringent standards. Well, 2015 is here, and manufacturers will not be the only ones impacted by the new requirements. Their burden is already being passed on to the companies that use heavy equipment in the form of higher acquisition costs.