The Shortage of Machining Equipment & Section 179 Tax Issues

The shortage of machining equipment has only worsened since the beginning of the COVID-19 pandemic. A slow supply chain restart has left buyers with unprecedented wait times. Coupled with Russia's invasion of Ukraine, purchasing new machinery has likely never been more challenging. And as a result, it's never been a better time to buy and sell used machinery. 

In particular, semiconductor chips, an essential component in the production of CNC machinery, have become too expensive or hard to source. Unfortunately, the shortage is here to stay in the long run for various reasons:

  • Demand has been increasing faster than supply for years.
  • New and improved information technology (5G), increased remote workers, and the trend towards digitization of equipment and tools are all increasing in demand. 
  • Geo-political disputes with China reduced the supply and increased the United States' dependency on Taiwanese manufacturers. 
  • Taiwan's water scarcity limits its production capacity. Purified water is required in large amounts to produce computer chips. Unfortunately, there is no short-term solution to this shortage. 

Ongoing Shortage of Used Machining Equipment

These are a few examples of the issues the semiconductor industry faces. Intel CEO Pat Gelsinger believes chip shortages will last until 2024.  

As manufacturers grapple with labor and parts availability, the market has sought solutions through the used machining equipment marketplace. Section 179, a federal tax benefit designed for small and medium-sized enterprises, has strengthened the used machinery market's viability as a practical alternative. 

Section 179 applies to capital purchases across multiple industries and is ideal for used machinery purchases. It allows companies to deduct the entire purchase price in the first year, up to a specified maximum based on their gross income. In other words, it directly lowers the purchasing cost of equipment. Here are some essential facts to consider:

  • The maximum amount for a complete Section 179 deduction in 2022 is $1,080,000. After that, it gradually increases until reaching $3,080,000.
  • Used equipment qualifies for Section 179, provided first use by the acquiring company.
  • Equipment must be put in service and activated before December 31, 2022. 
  • Equipment may be bought or leased using Section 179 qualified financing.
  • There is a business use requirement. Machine tools that are 100% for business use qualify for the full deduction.
  • Bonus depreciation is 100% in 2022 and applies on top of Section 179 for used equipment purchases.
  • 2022 is the last year of 100% bonus depreciation. It will start decreasing in 2023 unless extended by Congress.
  • Section 179 is available to all businesses, but it is not automatic. Business owners must apply for it using IRS form 4562.

Start browsing MACHINIST EXCHANGE for used machinery and apply for Section 179 write-offs. We're here to help you find what you need and are proud to do so with unparalleled transaction security.