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Tax Law Changes for Bonus Depreciation

By: Charles L. Telk Jr., CPA, Partneremail

The latest tax law changes passed in 2010 enhanced available bonus depreciation from 50% to 100% for property placed into service between September 9, 2010 and December 31, 2011.  Generally, the following rules apply:

1. The property must be MACRS property with a class life of 20 years or less.  This includes qualified leasehold improvements (15 years) and “off the shelf” software (3 years).

2. The property’s original use must begin with the taxpayer, so used assets do not qualify.  While there isn’t much guidance in this area, 168(k) has historically applied to property with a placed-in-service date during the applicable time-frame.

While we wait for the IRS to clarify the rules, RIA has issued guidance stating that property under a binding contract for purchase entered into after December 31, 2007 will qualify for the 100% bonus depreciation if it is placed in service during the dates mentioned earlier in this article.

50% bonus depreciation can’t be elected in lieu of 100%. The election to take bonus depreciation applies to each class life, not each asset.

The deduction drops back to 50% for assets placed in service after December 31, 2011 but before January 1, 2013.