April 14, 2011

IRS Releases Guidance for 100 Percent Bonus Depreciation

IRS Releases Guidance for 100 Percent Bonus Depreciation Tax & Business

On March 29, 2011, the IRS released a new revenue procedure (Rev. Proc. 2011-26) concerning the recently enacted provision allowing 100 percent bonus depreciation for property placed in service after September 8, 2010 and before January 1, 2012. Qualifying property includes computer software, water utility property, qualified leasehold improvements, and MACRS property with a useful life is 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 be utilized to place businesses in a taxable loss position.

The Rev. Proc. includes important guidance related to:
  • Bonus depreciation allowed for self constructed property when construction begins prior to September 8, 2010,
  • The allowance of bonus depreciation for certain components of self constructed projects if the project began during an ineligible date,
  • Election to use 50 percent bonus depreciation for all property placed in service during 2010,
  • Bonus depreciation on automobiles will be limited to $11,060 for the first year.

Bonus depreciation under current law allows taxpayers an additional first year depreciation of 50 percent of the cost of original use property acquired and placed in service during 2008 to 2012. The recently enacted Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010 provides for a 100 percent deduction for property placed in service after September 8, 2010 and prior to January 1, 2012. Aircraft and other long production period property can qualify for 100 percent bonus if placed in service before January 1, 2013.

The revenue procedure also confirms that qualified restaurant and qualified retail property are also eligible if the property also qualifies as a leasehold improvement.

The procedures also further explains that taxpayers can choose not to use bonus depreciation, however, they would have to make an election to forgo the additional depreciation and may make separate elections for each class of property.

Taxpayers who filed returns prior to the enactment of legislation may claim the additional depreciation by filing an amended return or filing Form 3115 for change in method of accounting. Taxpayers who previously made an election not to deduct 50 percent bonus depreciation may claim this depreciation on an amended return.

Should you have any questions about this Tax Flash, contact your Marcum Tax Professional.

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