Chris Bucher is director of Hancock Whitney’s equipment finance division, so he’s keenly aware of the importance of equipment in the industrial services sector. Hancock Whitney is one of the Gulf South’s oldest and most well-respected banks, with roots that go back more than 100 years. The bank has long had a role in helping the region’s vibrant energy and industrial corridor grow, serving both these industries and the communities that grew up around them. While tax laws have changed over time, the bank’s commitment to the Gulf South has not. Recently, Bucher outlined the ways one new tax law could impact clients who rely on equipment finance.
Bucher said, from an equipment financing and capital expenditures perspective, the new law, the Tax Cuts and Jobs Act, has two key provisions. The first enables businesses to fully expense both new and used equipment, while the second provision sets limits on business interest deductions.
Under the old law, a company could take a 50-percent deduction for the first year equipment was owned, with first-year and subsequent bonus depreciation amounts based on the MACRS (modified accelerated cost recovery system) depreciation schedule. The deduction was set to drop to 40 percent in 2018 and 30 percent in 2019 before being eliminated in 2020 — and only new equipment was eligible for bonus depreciation.
Under the new tax law, a company can fully expense 100 percent of its investment in both new and used equipment through 2022 for most assets. This significantly reduces the overall cost of putting an asset into service, and allowing used equipment to be fully expensed offers greater flexibility to businesses as they make capital investment decisions. In addition, the new law repeals the corporate alternative minimum tax or “AMT.” However, the law also eliminates loss carrybacks and limits loss carryforwards to 80 percent of taxable income.
Before tax reform, in most cases businesses were able to deduct their business interest to reduce their tax liability. Under the new tax law, from 2018 to 2022, businesses with average gross receipts of $25 million or more will only be able to deduct business interest equal to 30 percent of EBITDA (earnings before interest, tax, depreciation and amortization). After 2022, the limitation becomes a more conservative 30 percent of EBIT (earnings before interest and taxes). Bucher recommends consulting with a tax professional to assess the impact of tax reform on your company’s tax position and capital efficiency.
Overall, Bucher says the new tax law makes acquiring capital assets more economically attractive. With access to capital markets nationwide and customized loan and lease structures for things like construction equipment, machine tools, material handling equipment, robotics, transportation and technology, Hancock Whitney is perfectly positioned to help clients make any necessary equipment financing changes after evaluating the new tax law’s implications.
For more information, visit www.hancockwhitney.com/equipmentfinance or call (504) 299-5097.