MoldMaking Technology

AUG 2018

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48 MoldMaking Technology —— AUGUST 2018 THE BOTTOM CONTRIBUTOR Michael J. Devereux II, CPA, CMP is a partner and director of manufacturing, distribution and plastics industry services at Mueller Prost. acceleration in the recovery of the purchase price may increase the value of the acquisition and increase the purchase price. Mold builders who own their own plants in a real-property trade or business, who have average annual gross receipts from over the past three tax years that exceed $25 million and who are highly leveraged with debt may consider electing out of the new interest expense limitations and use the Alternative Depreciation System (ADS) in lieu of claiming the bonus depreciation. This may preserve their ability to deduct their interest expense on debt that was used to acquire the plant. Section 179 Before the Act, mold shops were allowed to immediately expense up to $500,000 of the cost of Section 179 property. This amount is indexed for inflation and was $510,000 for property that was placed in service in 2017. This provision has generally been used by small and medium- sized businesses, as the benefit was phased out once the eligible purchases exceeded $2,000,000 (or $2,030,000 in 2017, as the phase-out also was indexed for inflation). If the mold builder exceeded the phase-out amount in a given year, the amount of Section 179 deduction available for immediate expensing decreased by the amount that exceeds the phase-out amount. For example, for tax year 2017, mold builders could no longer claim a Section 179 deduction if the amount of the eligible purchases exceeded $2,540,000 (or $2,030,000 plus $510,000). The Act increases the Section 179 limit from $500,000 to $1 million and also increases the phase-out threshold to $2.5 mil- lion. This means that the Section 179 amount is not phased- out until eligible purchases exceed $3.5 million. Also, mold builders may claim up to $25,000 of Section 179 on eligible SUVs purchased and used in the business. The Act also amended the definition of eligible Section 179 property to include qualified improvement property and improvements made to a mold builder's manufacturing plant, such as a new roof, heating, ventilation and air-conditioning property and fire protection and security systems. The Section 179 changes apply to property that mold builders place in service in the tax year beginning after December 31, 2017. Like-Kind Exchanges A like-kind exchange enables mold builders to defer the gain related to the sale of property that is used in the mold builder's business as long as like property is purchased within the appropriate time frame and used by the mold builder. The Act limits the benefit of a like- kind exchange to real property. Like- kind exchanges are no longer available for personal property. The Act has made drastic changes to how mold shops account for capital expenditures. Because of the increased benefit of bonus depreciation and Section 179 coupled with the expanded definition of qualified property, mold builders are poised to reduce their fed- eral tax liabilities. Proper cost segrega- tion may mean added benefit to those mold builders who take steps to classify the appropriate class life to property and use the new provisions provided by the Act. FOR MORE INFORMATION Mueller Prost 314-862-2070 mdevereux@muellerprost.com muellerprost.com

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