Bonus Depreciation and Section 179 Expense

Bonus depreciation. The 2014 Tax Prevention Act extends the 50-percent first-year bonus depreciation allowance for one year to apply to qualifying property acquired after December 31, 2007 and placed in service before January 1, 2015 (or before January 1, 2016, for certain longer-lived and transportation property). There is no limit on the total amount of bonus depreciation that may be claimed in any given tax year, and the bonus depreciation allowance rate of 50 percent remains unchanged.

Code Sec. 179 expense deduction. In addition to the bonus depreciation changes, the 2014 Tax Prevention Act retroactively extends the increased deduction and investment limits under Code Sec. 179. Generally, Code Sec. 179 permits a business that satisfies limitations on annual investment to elect to deduct (or “expense”) the cost of qualifying property rather than depreciate the cost over time.

For tax years beginning after 2009 and before 2015, taxpayers are permitted to expense up to $500,000 of the cost of qualifying property under Code Sec. 179, reduced by the amount by which the qualified investment exceeds $2,000,000. Qualifying property includes depreciable tangible personal property purchased for use in the active conduct of a trade or business. Off-the-shelf computer software placed in service in tax years beginning after 2002 and before 2015 is treated as qualifying property.

If you have any questions about how these developments apply to you, or about any other aspects of this legislation, please contact our office at your convenience.