Depreciation Updates
As we approach year end, many taxpayers plan to acquire additional assets as either an expense or to take advantage of bonus depreciation, which is currently scheduled to reduce to 50% unless the law is extended. The following article highlights some basic depreciation, bonus depreciation and Section 179 expensing rules and provides a good referral source for planning.
Revenue Procedure 2011-26, issued by the IRS in the spring of 2011, provides for 100% bonus depreciation for qualifying property placed in service after September 8, 2010 and before January 1, 2012. The guidance outlines bonus depreciation rules for “qualifying property” used in businesses, including computer software, water utility property, qualified leasehold improvements, and MACRS property with a useful life of 20 years or less.
The use of bonus depreciation is not limited to smaller entities and there is no cap on the expenses permitted. The deductions may also be utilized to place businesses in a taxable loss position.
The information below summarizes the basic rules for depreciation of certain qualifying property:
- Qualified Leasehold Improvements
Placed in Service: 10/23/04-12/31/11
MACRS Recovery Period: 15 Year/Straight Line
Bonus Depreciation Eligible: Yes, if placed in service between 10/23/04-12/31/04 or 1/1/08-12/31/11
Section 179 Expense Eligibility: Up to $250,000 - Qualified Restaurant Property 2004-2007
Placed in Service: 10/23/04-12/31/07
MACRS Recovery Period: 15 Year/Straight Line
Bonus Depreciation Eligible: No
Section 179 Expense Eligibility: No - Qualified Restaurant Property 2008
Placed in Service: 1/1/08-12/31/08
MACRS Recovery Period: 15 Year/Straight Line
Bonus Depreciation Eligible: Yes
Section 179 Expense Eligibility: No - Qualified Restaurant Property 2009-2011
Placed in Service: 1/1/09-12/31/11
MACRS Recovery Period: 15 Year/Straight Line
Bonus Depreciation Eligible: No
Section 179 Expense Eligibility: No - Qualified Retail Improvement Property
Placed in Service: 1/1/09-12/31/11
MACRS Recovery Period: 15 Year/Straight Line
Bonus Depreciation Eligible: No
Section 179 Expense Eligibility: Up to $250,000
Additionally, the Revenue Procedure permits taxpayers to claim an election for qualified leasehold improvement construction costs acquired or placed in service after September 8, 2010 if construction started earlier than September 8, 2010 in order to be able to utilize 100% bonus depreciation. Previously these assets would be limited to a 50% deduction. The election can be made for any qualified leasehold improvement constriction or component acquired and placed in service after September 8, 2010 with construction starting before September 8, 2010.
For your reference, prior and future Bonus Depreciation Rates are as follows:9/11/2001-5/5/2003 | 30% |
5/6/2003-12/31/2004 | 50% |
1/1/2008-9/8/2010 | 50% |
9/9/2010-12/31/2011 | 100% |
1/1/2012-12/31/2012 | 50%* |
Tax Years Beginning in: | Dollar Limitation | Investment Limitation |
| 2003 | $100,000 | $400,000 |
| 2004 | $102,000 | $410,000 |
| 2005 | $105,000 | $420,000 |
| 2006 | $108,000 | $430,000 |
| 2007 | $125,000 | $500,000 |
| 2008 and 2009 | $250,000 | $800,000 |
| 2010 and 2011 | $500,000 | $2,000,000 |
| 2012* | $125,000 | $500,000 |
| 2013 and thereafter* | $25,000 | $200,000 |
*Unless extended by the President.
For further guidance on depreciation and other tax issues, please contact your Marcum Tax Professional.
