Bonus Depreciation

General Overview:

Until 2008, Section 168(k) of the Code permitted a 50-percent bonus depreciation first year deduction for “qualified property” acquired by a taxpayer after 2007 and placed in service by the taxpayer before 2010 (or 2011 for certain qualified property having longer production periods or certain aircraft).

The Small Business Jobs Act of 2010, Pub. L. No. 111-240, 124 Stat.  2504 (September 27, 2010) (“SBJA”) and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, Pub. L. No. 111-312, 124 Stat. 3296 (December 17, 2010) (“TRUIRJCA”), amended and expanded Section 168(k) of the Code by authorizing (a) a time extension of the 50-percent bonus depreciation provision and (b) a 100-percent additional bonus depreciation opportunity for certain new property.

The SBJA provided that the 50-percent depreciation deduction would be permitted for property placed in service before 2011 (before 2012 for certain property with long production periods or certain aircraft).  The TRUIRJCA further amended the statute to permit the 50-percent deduction for property placed in service before 2013 (before 2014 for certain property with long production periods or certain aircraft).  The amendments provided by TRUIRJCA apply to property placed in service after December 31, 2010.

Under TRUIRJCA, the new 100-percent bonus depreciation (added as a new Section 168(k)(5)) is permitted for qualified property acquired by the taxpayer after September 8, 2010 and before January 1, 2012 and placed in service by the taxpayer before January 1, 2012 (before January 1, 2013 for certain property with long production periods or certain aircraft).  The property for which 100-percent bonus depreciation is sought must meet certain additional requirements described in Section 3 of Rev. Proc. 2011-26.

Coordination with Tax Credits and Section 1603 Payments:

Rev. Proc. 2011-26 provides special guidance relating to the 100-percent bonus depreciation provision of Section 168(k) and tax credits/Section 1603 payments.  Except for the rehabilitation credit under Section 47 of the Code, the 100-percent bonus depreciation deduction is determined for eligible qualified property only after the reduction of the property’s basis by the amount of any credits claimed for the property that require an adjustment to basis (for example, the disabled access credit under Section 44 of the Code or the energy credit under Section 48 of the Code) or any payments received for specified energy property under Section 1603 of ARRA.

Resources:

Invest in America Now Act of 2012 (H.R. 5974, 112th Congress) would extend the 100-percent bonus depreciation deduction by one year, through January 1, 2013 (or before January 1, 2014 for certain property with long production periods or certain aircraft).

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