The U.S. is experiencing its first tax overhaul in more than 30 years.

H.R.1, also known as the Tax Cuts and Jobs Act of 2017 (TCJA), was signed on December 22, 2017. The act changes many provisions of the Internal Revenue Code (IRC). Most provisions of TCJA became effective on January 1, 2018. 

Opportunity ahead

TCJA will positively impact many businesses, promoting a variety of expansions, new investments and more capital expenditures. In fact, this year, U.S. businesses are expected to make their largest capital investments since 2012.

Key Provisions:

Corporate Tax Rate Reduced

The corporate tax rate is now a flat 21% for C-corporations, which had previously ranged from 15-39%. Pass-through entities are now eligible for a 20% deduction on taxable profits, passed through to the owner.

• What does this mean for you?

  Income tax relief is expected to stimulate investment. The tax rate reduction improves net income and cash flow for corporations, opening the door for equipment rentals, IT refreshes, and facility expansions.

Bonus Depreciation

For the next five years, businesses can realize 100% of depreciation in the year they acquire an asset. Previously, businesses were only able to expense just a percentage of depreciation, spread over several years. 

• What does this mean for you?

  This new provision offers businesses immediate relief from their equipment and property acquisitions on their balance sheet, lowering their taxable net income.

Interest Deductibility Cap 

The new tax law limits interest expense deductions to 30% of adjusted taxable income (EBITDA) per year, effective through 2021. Previously, there were very few limitations on interest deductibility. 

• What does this mean for you? 

  This provision favors leasing over loans. Businesses that normally use loans for financing will be more limited in deducting their interest payments. This will lead to a higher taxable income and more taxes owed. Tax leases are a great alternative and are 100% deductible as an operating expense. 

Income Tax Indemnification 

Many banks, vendors and lessors include income tax indemnification clauses within their master leases to protect themselves from changes in Federal tax rates that could impact their business. 

• What does this mean for you?

  Income tax indemnification clauses allow lessors to increase rates—mid-lease term—if Federal tax rates change. The recent reduction in the corporate tax rate may cause these lessors to increase the rates on your existing tax leases to make up for their loss. 

Use a Lease Line of Credit

As a result of the TCJA, many businesses are considering significant capital investments to grow capabilities and improve operational efficiency. However, identifying potential financing partners, soliciting proposals, conducting due diligence, and analyzing financing terms for each and every project is too time-consuming. Instead, many such businesses are choosing a lease line of credit to save time and simplify their process.

This pre-approved credit facility can be used to fund various projects over a period of time. Lease lines eliminate the need to conduct due diligence on every project. You make one decision on a lease line rather than many decisions for many projects.  

• 100% Project financing
• No-fee lease line
• Dedicated project manager

We Understand Financing

First American Equipment Finance is dedicated serving their clients across many industries. Providing customized leasing and financing solutions is just the beginning. We work together with leading innovators across a variety of industries to help them make an impact.