If you are thinking of buying new vehicles, equipment, machinery, phones, computers or other technology for your business, 2011 could be the year to do it. That’s because not one, but two laws passed late last year have greatly increased the amount of your immediate tax write-off for making such purchases.
The so-called Section 179 deduction limit, slated to revert to $25,000, was increased to $500,000, and the total amount of equipment that can be purchased was increased to $2 million (up from $200,000). This includes most new and used capital equipment, and also includes software. In addition, bonus depreciation was increased to 100 percent on qualified assets (new equipment only). When applying these provisions, Section 179 is generally taken first, followed by bonus depreciation.
Bonus depreciation, a special depreciation allowance, is a limited-time tax benefit for business purchases of qualified items during 2011, or in some cases 2012 as well. Basically, bonus depreciation offers a giant tax incentive for businesses to buy new property and other assets now by allowing you to write off (or “expense” in accounting lingo) the entire purchase (100 percent) immediately rather than having to take those write-offs in little pieces over many years (called depreciation). Normally, businesses recover these types of capital investments through annual deductions spread over as many as 20 years.
This provision of the Tax Relief Act passed late last year doubles the amount of bonus depreciation allowed – from half of the purchase cost, to the full amount (100 percent) for this year. That’s up from 30 percent from a few years ago. In other words, if you buy some PCs, servers, phone-equipment machinery or all kinds of other qualifying items, you can take the entire amount as a deduction on your 2011 tax return.
The temporary rule change also makes 50 percent bonus depreciation available for qualified property placed in service during 2012. Some long-lived property and transportation property is eligible for 100 percent expensing if placed in service by the end of 2012. What’s more, there is no cap on the amount you can spend and deduct, and the benefit applies to businesses of any size.
A detailed list of qualifying types of property is available at IRS.gov. To qualify for the Section 179 deduction, your property must have been acquired for use in your trade or business. Property you acquire only to produce income, such as investment property, rental property (if renting property is not your trade or business) and property that produces royalties, does not qualify. •
Daniel Kehrer can be reached at editor@bizbest.com.
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