Time is Running out on Tax Laws that Benefit Digital Billboard Operators

In recent years, tax laws have been very favorable for billboard operators who want to invest in digital billboards, and 2012 is no different. Congress reinstated the bonus depreciation deduction and Sec. 179 expensing limits, providing a favorable expensing climate for qualified property acquired and placed into service by the end of 2012.

The tax law can benefit billboard operators by lowering taxable income and freeing up cash. Under current tax law, capital expenditures, including the purchase and installation of digital billboards, are eligible for a 50 percent tax deduction in 2012, plus the percentage of the remaining investment cost basis in the equipment that would ordinarily be depreciable under the Modified Accelerated Cost Recovery System.

For a $200,000 piece of equipment with a five-year MACRS life, the first-year depreciation would be $120,000: a $100,000 depreciation bonus, plus 20 percent of the remaining $100,000 in basis.

You should consider the limits of the law if you buy a digital billboard. Billboard operators can expense up to $139,000 as long as total purchases do not exceed $560,000. As the chart below depicts, for each dollar spent on capital purchases over $560,000, the eligible expensing amount correspondingly drops by one dollar. Thus, companies that spend more than $699,000 on tangible property cannot take advantage of Sec. 179, but they can still use the depreciation bonus.

2012 Qualifying Capital Expenditures

Section 179 Deduction

$ 560,000 $139,000
$ 600,000 $99,000
$ 699,000 $0

It is unclear if Congress will act to extend the bonus depreciation in 2013.

As always, you should seek the advice of a tax professional before making any capital purchases or visit the Internal Revenue Service web site at http://www.irs.gov.

Free Guide: Download our top 10 tips for securing digital billboard financing.