Tax Flexibility page

Since the IRS considers movable wall systems as tangible personal property per Revenue Ruling 75-178, 1975-1 C.B. 9, and later reaffirmed in Revenue Ruling 80-151, 1980-1 C.B. 7, they can be depreciated over a period of 7 years versus 39 years for standard fixed construction. This classification is determined by the following criteria:

1. whether the property is removable or movable
2. its means of attachment
3. its design; and
4. whether it bears a load.

The table below illustrates the depreciation rate of the GL-350 compared to standard drywall.



After 8 years, businesses that purchase Gravity Lock’s GL-350 will recover 100% of the cost. While during the same period, businesses that opt for standard fixed construction only recover 20.5% of the cost. What does this mean in dollars and cents?

An example by Alan Whitson in Depreciation Without a Headache illustrates this:
"Depreciation reduces a company’s profits, and profits are taxed. At a 39-percent income tax rate, every $100 of depreciation can reduce income taxes by $39. The fewer dollars spent on taxes, the more money available to invest in the business or pay employees.
If the [business owner] had invested their tax savings at 12-percent a year, in 10 years it grows to $17,549. However, using movable partitions, not fixed partitions, allows them to use a 7-year depreciation schedule. Those tax savings would have grown to $82,483 – a 470-percent increase."

The following chart is a graphic example of the potential earnings during a 10-year period, using a 39% tax rate, and a 12% annual re-reinvestment of tax savings.



THE SECTION 179 DEDUCTION

While the 7-year depreciation rate is far more attractive than the 39-year depreciation rate, there is yet another means of depreciating the GL-350. For most small and medium-size businesses, there is the option of the Section 179 deduction.

For these qualified businesses, Section 179 of the IRS tax code provides the option to depreciate the full purchase price of business equipment from your gross income in the first year. Limits exist to the total amount written off ($250,000 in 2009) and the total amount of the equipment purchased ($800,000 in 2009). Under the current law, business that exceed the $250,000 deduction limit can take an addition 50% bonus depreciation on the amount that exceeds the limit. The normal 7-year depreciation rate will apply to the rest.

The table below illustrates how Section 179 works for purchases that exceed the $250,000 deduction limit:

For purchases $250,000 or less, it’s much simpler. Your total first year deduction is your full purchase price. Multiple your purchase price by your tax rate percentage to find your cash savings.

Section 179 is subject to change yearly without notice, so act now while it is available to you. For more information regarding the tax advantages of using the Section 179 deduction, your qualifications, and additional bonuses per the Stimulus Act of 2008 and American Recovery and Reinvestment Act of 2009, please contact your accountant or tax advisor.

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