50% Bonus Depreciation: Faster Tax Write-Off for Equipment
- 50% Bonus depreciation in some form has been in place since 2008 during President George W. Bush’s tenure in the White House to help stimulate a lagging economy.
- Under "Bonus Depreciation", companies can deduct an additional 50% of the cost of an equipment purchase in the first year of service, on top of the regular depreciation schedule.
- 50% Bonus depreciation is eligible in 1st year of service only.
- Bonus depreciation must be taken:
- AFTER any elected §179 deduction and
- BEFORE any regular depreciation.
- 50% Bonus depreciation must be on:
- New property,
- NOT Used property, and
- New-in-Service to the taxpayer.
- Illustration: Assume that in 2013, a taxpayer purchased new depreciable property and placed it in service. (Consider elected §179 expensing to the cost of the property to be 20,000).
- Property’s cost is 100,000, and it is 5-year property subject to 200%/DB/Half-Year (MACRS method/convention).
- §179 elected is 20,000
- Additional first-year (50% Bonus depreciation) depreciation allowed is 40,000. [50% x (100,000 - 20,000)]
- The remaining 40,000 (100,000 - 20,000 - 40,000) of the cost of the property is depreciated under the rules applicable to 5-year property.
- 8,000 is allowable as current year depreciation expense in 2013 (8,000 results from the application 200%/DB/Half-Year method and convention to the remaining 40,000).
- Total depreciation deduction with respect to the property for 2013 is 68,000. The remaining 32,000 Adjusted Basis of the property will be recovered over the remaining life of the asset using applicable depreciation rules.
- Additional first-year depreciation deduction is allowed for both the regular tax and the alternative minimum tax (“AMT”).
- IRC §168(k). Additional first-year depreciation deduction is subject to the general rules regarding whether an item must be capitalized under §263A.
- 100% of the adjusted basis of qualified original-use property that meets the requirements for the additional first-year depreciation is eligible.
H.R.4718 - To amend the Internal Revenue Code of 1986 to modify and make permanent bonus depreciation
