Bonus Depreciation and Section 179 Depreciation 
by John Ratcliffe

If you are considering investing in business property in the next few months you may want to consider making the investment before the end of 2011. Depending upon whether the asset is new or used you could benefit from either the bonus depreciation rules or Section 179. If you are buying a new asset you should look to see if bonus depreciation is more beneficial than section 179 depreciation. If the asset you are purchasing is used then you can only benefit from the section 179 rule as bonus depreciation does not apply to used business property purchases. Regardless of the depreciation method you use the asset must be “placed in service” before you can depreciate it. This means that if the asset requires any installation or construction you cannot depreciate the asset until it is functional for use.

There is a 100% write-off in the placed-in-service year for the cost of property eligible for bonus depreciation under Code Sec. 168(k). This applies for property acquired and placed in service after Sept. 8, 2010, and before Jan. 1, 2012. There is a 50% bonus first-year depreciation allowance under Code Sec. 169(k) for property placed in service after Dec. 31, 2011, and before Jan. 1, 2013.

The Small Business Jobs Act of 2010 and Section 179 Deduction
A qualifying taxpayer can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property.

The Small Business Jobs Act increases the IRC section 179 limitations on expensing of depreciable business assets and expands the definition of qualified property to include certain real property for the 2010 and 2011 tax years.

Under Small Business Jobs Act, qualifying businesses can now expense up to $500,000 of section 179 property for tax years beginning in 2010 and 2011. Without the Small Business Jobs Act, the expensing limit for section 179 property would have been $250,000 for 2010 and $25,000 for 2011.

The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2,000,000.

The definition of qualified section 179 property will include qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property for tax years beginning in 2010 and 2011.

Depreciation limits on business vehicles:
The total depreciation deduction (including the section 179 expense deduction) you can take for a passenger automobile (that is not a truck or a van) that you use in your business and first placed in service in 2010 is increased to $3,060. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2010 is increased to $3,160. (Note: with bonus depreciation for a new vehicle, the dollar cap becomes $11,060 for autos and $11,160 for trucks or vans). A word of caution: These limits are reduced if the business use of the vehicle is less than 100%.

In conclusion if you are considering a purchase of business property please seek advice from your tax advisor on how you could benefit by accelerating your depreciation deduction.