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Deadline Approaches on Bonus Depreciation

By Bryan Patterson, CPA

When the economy took a downturn in 2008, Congress expanded first-year depreciation options with the intent to stimulate the economy. On December 17, 2010, Obama extended these depreciation incentives through December 31, 2011. This means the deadline for some beneficial depreciation elections are coming to an end. The following is a review of the changes involving depreciation for the year 2012.

Bonus Depreciation

In 2008, Congress enacted a bonus depreciation option to allow companies to elect 50% depreciation in the first year for qualifying assets. When Congress extended this in December 2010 they increased the allowance to 100% for the first year. This was for assets put in service by December 31, 2011. As of January 1, 2012, the first year election will fall back to 50%. The two main requirements to qualify are (1) it must be a new asset put in service and (2) the asset's normal useful life must be no more than 20 years. Also, under the current act the bonus election will go away completely in 2013.

§179 Depreciation

The other first-year depreciation election is commonly known as §179 Depreciation Expense. The election is for qualifying assets to be depreciated 100% in the initial year of use. This election is valid for either new or used assets including machinery, equipment and vehicles that have a total weight of over 6,000 pounds.

This election got a significant increase in 2010 to a limit of $250,000 and $500,000 in 2011. Right now, the limit will reduce to $125,000 for 2012 and 2013. Also, there has been a threshold on the total amount of capital assets a company can purchase before the §179 election starts phasing out. In 2011, this threshold was $2,000,000. In 2012, the ceiling will be reduced to $500,000.

If you are thinking about purchasing any capital assets before year-end, it could be beneficial to consult with your CPA to make sure you can get the most tax savings possible.

 

Unfortunately, it is impossible to give comprehensive tax and accounting advice over the internet, no matter how well researched or written. Before relying on any information provided here, contact a tax or accounting professional to discuss your particular situation.