In 2015, American heavy equipment companies will be subject to the many pressures associated with the purchase and use of Tier 4 equipment. Tier regulations require manufacturers to adhere to emissions regulations in the production of equipment engines. The EPA introduced Tier 4 in 2004 and designated a ramp-up period from 2008-2015 so that manufacturers could phase-in engine design changes that would meet the stringent standards. Well, 2015 is here, and manufacturers will not be the only ones impacted by the new requirements. Their burden is already being passed on to the companies that use heavy equipment in the form of higher acquisition costs.
How Tier 4 Impacts Your Heavy Equipment Business
Selling Equipment With Remaining Utility
Most businesses that utilize diesel driven equipment to conduct their business operations adhere to a predictable schedule of disposition and acquisition of their company’s equipment. Tier 4 mandates now require many companies to sell off used equipment far short of the end of its utility and useful life. This has cost ramifications.
Sacrificing Government Contracts
Many companies that depend on federal and state contracts will not be able to bid on or work jobs if their equipment is not Tier 4-compliant — once again imposing extra costs onto businesses who are forced to upgrade equipment if they want to work on government projects. These companies will have to upgrade to equipment that is Tier 4-compliant if they want this business.
Increased Maintenance Cost
If companies do not replace their fleets with Tier 4 approved equipment, they will not only find themselves at a competitive disadvantage; they will see their maintenance costs on non-compliant equipment rise as the use of that equipment is increasingly disincented.
Consider a 1031 Like-Kind Exchange Strategy
Given these challenges, companies may consider a 1031 like-kind exchange strategy as part of their equipment acquisition/disposition practice. Such a strategy could provide owners the cash flow boost necessary to mitigate the new equipment-replacement policies that come with Tier 4.
Section 1031 of the IRC Tax Code provides for the deferral of taxes on realized gains from the sale of business assets. This can result in an immediate cash benefit of 40% of the sale revenues generated when you dispose of your old or non-compliant equipment, money that would otherwise be paid in taxes.
If you bought a piece of construction equipment for $200,000, used it in your business for five years, and then sold it for $50,000, you would normally owe $20,000 in income taxes — leaving you with only $30,000 to buy new equipment. With a 1031 like-kind exchange, you would pay ZERO in taxes and have the entire $50,000 to use towards purchasing new equipment.
Conclusion
A company’s success is intrinsically linked to its ability to replace and replenish its business equipment in a timely and financially-viable manner. Embracing a personal property like-kind exchange strategy may be an advantageous means of generating extra cash for the purchase of new equipment to stay competitive in a Tier 4 environment.
Blog
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How to Mitigate the Financial Impact of Tier 4 Regulations
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How to Mitigate the Financial Impact of Tier 4 Regulations
In 2015, American heavy equipment companies will be subject to the many pressures associated with the purchase and use of Tier 4 equipment. Tier regulations require manufacturers to adhere to emissions regulations in the production of equipment engines. The EPA introduced Tier 4 in 2004 and designated a ramp-up period from 2008-2015 so that manufacturers could phase-in engine design changes that would meet the stringent standards. Well, 2015 is here, and manufacturers will not be the only ones impacted by the new requirements. Their burden is already being passed on to the companies that use heavy equipment in the form of higher acquisition costs.
How Tier 4 Impacts Your Heavy Equipment Business
Selling Equipment With Remaining Utility
Most businesses that utilize diesel driven equipment to conduct their business operations adhere to a predictable schedule of disposition and acquisition of their company’s equipment. Tier 4 mandates now require many companies to sell off used equipment far short of the end of its utility and useful life. This has cost ramifications.
Sacrificing Government Contracts
Many companies that depend on federal and state contracts will not be able to bid on or work jobs if their equipment is not Tier 4-compliant — once again imposing extra costs onto businesses who are forced to upgrade equipment if they want to work on government projects. These companies will have to upgrade to equipment that is Tier 4-compliant if they want this business.
Increased Maintenance Cost
If companies do not replace their fleets with Tier 4 approved equipment, they will not only find themselves at a competitive disadvantage; they will see their maintenance costs on non-compliant equipment rise as the use of that equipment is increasingly disincented.
Consider a 1031 Like-Kind Exchange Strategy
Given these challenges, companies may consider a 1031 like-kind exchange strategy as part of their equipment acquisition/disposition practice. Such a strategy could provide owners the cash flow boost necessary to mitigate the new equipment-replacement policies that come with Tier 4.
Section 1031 of the IRC Tax Code provides for the deferral of taxes on realized gains from the sale of business assets. This can result in an immediate cash benefit of 40% of the sale revenues generated when you dispose of your old or non-compliant equipment, money that would otherwise be paid in taxes.
If you bought a piece of construction equipment for $200,000, used it in your business for five years, and then sold it for $50,000, you would normally owe $20,000 in income taxes — leaving you with only $30,000 to buy new equipment. With a 1031 like-kind exchange, you would pay ZERO in taxes and have the entire $50,000 to use towards purchasing new equipment.
Conclusion
A company’s success is intrinsically linked to its ability to replace and replenish its business equipment in a timely and financially-viable manner. Embracing a personal property like-kind exchange strategy may be an advantageous means of generating extra cash for the purchase of new equipment to stay competitive in a Tier 4 environment. -
ELFA Capitol Connections 2015
In an effort increase awareness of current policy issues and to convey the voice of the equipment leasing and financing industry, members of the Equipment Leasing and Finance Association (ELFA) are on Capitol Hill May 13-May 14 for meetings with elected officials and legislative staff.
Accruit’s Brent Abrahm joined top executives in the leasing industry to meet with members of Congress and the Joint Committee on Taxation on matters pertinent to like-kind exchanges.
Photo: (left to right) Dan McKew of Capital One Leasing, Representative Lynn Jenkins (R-KS), Accruit’s Brent Abrahm -
ELFA Capitol Connections 2015
In an effort increase awareness of current policy issues and to convey the voice of the equipment leasing and financing industry, members of the Equipment Leasing and Finance Association (ELFA) are on Capitol Hill May 13-May 14 for meetings with elected officials and legislative staff.
Accruit’s Brent Abrahm joined top executives in the leasing industry to meet with members of Congress and the Joint Committee on Taxation on matters pertinent to like-kind exchanges.
Photo: (left to right) Dan McKew of Capital One Leasing, Representative Lynn Jenkins (R-KS), Accruit’s Brent Abrahm -
ELFA Capitol Connections 2015
In an effort increase awareness of current policy issues and to convey the voice of the equipment leasing and financing industry, members of the Equipment Leasing and Finance Association (ELFA) are on Capitol Hill May 13-May 14 for meetings with elected officials and legislative staff.
Accruit’s Brent Abrahm joined top executives in the leasing industry to meet with members of Congress and the Joint Committee on Taxation on matters pertinent to like-kind exchanges.
Photo: (left to right) Dan McKew of Capital One Leasing, Representative Lynn Jenkins (R-KS), Accruit’s Brent Abrahm -
How to Help Prevent the Repeal of 1031 Exchanges
In March, the Like-Kind Exchange Coalition, comprised of representatives from real estate, equipment rental, car rental, energy and QI organizations met in Washington D.C. with two purposes. The first was to announce the results of the comprehensive E&Y study examining the impact a repeal of 1031 like-kind exchanges would have on the economy. The second was to schedule as many meetings possible with members of the Senate Finance and House Ways & Means committees during the three days that we were in D.C. The number of meetings turned out to be 60 and included meetings the Chief of Staff of the Senate Finance Committee, chaired by Senator Orin Hatch, and the E&Y study, shrinks GDP by $8 billion to $13 billion per year.
The 1031taxreform.com/join-campaign. The impact realized from this three-minute effort is exponential.
Involve Your Industry Associations
I also encourage you to contact your industry-specific associations and ask them what they are doing to help ensure that like-kind exchanges are retained. We’re surprised to find several national associations downplaying or altogether ignoring the impact that 1031 repeal would have on their members, a stance that stems from corporate willingness to sacrifice anything, like-kind exchanges included, for a decrease in the corporate tax rate. What’s missing from this notion however, is the understanding that 93% of American businesses are sole proprietorships that file at an individual tax rate and won’t benefit from a corporate-only tax reform strategy that dismisses 1031s.
If 1031s are important to your business, and you believe your association should be involved in their preservation, let them know. -
How to Help Prevent the Repeal of 1031 Exchanges
In March, the Like-Kind Exchange Coalition, comprised of representatives from real estate, equipment rental, car rental, energy and QI organizations met in Washington D.C. with two purposes. The first was to announce the results of the comprehensive E&Y study examining the impact a repeal of 1031 like-kind exchanges would have on the economy. The second was to schedule as many meetings possible with members of the Senate Finance and House Ways & Means committees during the three days that we were in D.C. The number of meetings turned out to be 60 and included meetings the Chief of Staff of the Senate Finance Committee, chaired by Senator Orin Hatch, and the E&Y study, shrinks GDP by $8 billion to $13 billion per year.
The 1031taxreform.com/join-campaign. The impact realized from this three-minute effort is exponential.
Involve Your Industry Associations
I also encourage you to contact your industry-specific associations and ask them what they are doing to help ensure that like-kind exchanges are retained. We’re surprised to find several national associations downplaying or altogether ignoring the impact that 1031 repeal would have on their members, a stance that stems from corporate willingness to sacrifice anything, like-kind exchanges included, for a decrease in the corporate tax rate. What’s missing from this notion however, is the understanding that 93% of American businesses are sole proprietorships that file at an individual tax rate and won’t benefit from a corporate-only tax reform strategy that dismisses 1031s.
If 1031s are important to your business, and you believe your association should be involved in their preservation, let them know. -
How to Help Prevent the Repeal of 1031 Exchanges
In March, the Like-Kind Exchange Coalition, comprised of representatives from real estate, equipment rental, car rental, energy and QI organizations met in Washington D.C. with two purposes. The first was to announce the results of the comprehensive E&Y study examining the impact a repeal of 1031 like-kind exchanges would have on the economy. The second was to schedule as many meetings possible with members of the Senate Finance and House Ways & Means committees during the three days that we were in D.C. The number of meetings turned out to be 60 and included meetings the Chief of Staff of the Senate Finance Committee, chaired by Senator Orin Hatch, and the E&Y study, shrinks GDP by $8 billion to $13 billion per year.
The 1031taxreform.com/join-campaign. The impact realized from this three-minute effort is exponential.
Involve Your Industry Associations
I also encourage you to contact your industry-specific associations and ask them what they are doing to help ensure that like-kind exchanges are retained. We’re surprised to find several national associations downplaying or altogether ignoring the impact that 1031 repeal would have on their members, a stance that stems from corporate willingness to sacrifice anything, like-kind exchanges included, for a decrease in the corporate tax rate. What’s missing from this notion however, is the understanding that 93% of American businesses are sole proprietorships that file at an individual tax rate and won’t benefit from a corporate-only tax reform strategy that dismisses 1031s.
If 1031s are important to your business, and you believe your association should be involved in their preservation, let them know. -
Tax Reform Interview with Michael Tuchman of Levenfeld Pearlstein
This interview is one in a series in which we’ve asked an industry leader questions on the topic of tax reform and the issues faced by Congress in addressing the tax code.
Michael Tuchman is a partner in -
Tax Reform Interview with Michael Tuchman of Levenfeld Pearlstein
This interview is one in a series in which we’ve asked an industry leader questions on the topic of tax reform and the issues faced by Congress in addressing the tax code.
Michael Tuchman is a partner in