Packaging Machinery Tax Incentives for 2012

The good news for anyone looking to add a packaging line or an individual packaging machine to their business in 2012 is that certain tax incentives have been carried over into the new year.  The bad news is that these tax incentives seem to be waning and heading toward elimination.  Two of the key tax incentives carried over for at least one additional year are Bonus Depreciation for new packaging equipment purchased and placed into service during the year 2012 and the Section 179 Deduction for both new and used equipment purchased and placed into service during 2012.

New and used packaging equipment may be eligible for Section 179 Expensing Elections.  In general, if a company purchases new or used packaging equipment  (the used equipment must be new to the purchaser), such as a filling machine, conveyors or capping equipment, the full cost of these packaging machines can be deducted immmediately.  For most of the packaging equipment, the machines must be purchased and placed in service by the end of 2012.  While the retention of the Section 179 Expensing Election is good news for businesses owners, 2012 also appears to be the beginning of the eventual fade out of Section 179 with the onset of reductions in the maximum deductions allowed. 

Federal tax laws allow for bonus depreciation on new packaging equipment purchased and placed into service in 2012.  The bonus depreciation for 2012 has been cut from 100% in the first year to 50% in the first year, showing that the bonus depreciation will likely follow the same phasing out path of Section 179.  However, 50% bonus depreciation still offers an incredible incentive toward purchasing new rinsing machines, turntables or other packaging equipment.

Normally, when a business adds filling equipment, conveyors or a complete packaging line, the expense of the packaging equipment is not fully tax deductible in the year of purchase.  Instead, the property "depreciates" over time and the purchaser of the packaging equipment receives a small tax deduction over several years.  The tax incentives noted above allow the fillers, cappers, labelers and even complete packaging systems to be expensed and deducted (up to the waning limits) in the same year of purchase.

However, keep in mind that the tax laws, on both the federal and state level, may change at any time - and we are still in the early days of 2012 with some uncertainty in the federal government surrounding 2012 tax laws.  The retaining of Section 179 and the Bonus Depreciation at the federal level seem to show that 2012 will still offer some incentives for businesses looking to add packaging machinery in the coming year.

NOTE:  This blog is not meant to offer legal or financial advice.  Certain requirements must be met for packaging equipment to qualify for the tax incentives mentioned above.  Because tax laws are constantly changing, anyone looking to purchase packaging machinery in 2012 should consult with their attorney, accountant or other financial advisor regarding potential tax incentives and benefits.