Bonus Depreciation and Section 179 Depreciation Rules for 2012

Related Article: 2012 / 2013 Bonus Depreciation & Section 179 Summary [TABLE]
  
The 2010 Tax Relief Act signed in December 2010 provides that qualified property acquired and placed in service during calendar 2012 qualifies for 50% bonus depreciation. For qualified property acquired and placed in service in calendar 2011, the law allowed 100% bonus depreciation. Current law provides that the bonus depreciation provisions will expire on December 31, 2012.

The bonus depreciation provision generally applies to tangible property with a recovery period not exceeding 20 years, as well as purchased computer software and qualified leasehold improvement property. Another provision relating to bonus depreciation is that the asset’s original use must begin with your business – therefore, used assets purchased will not qualify for bonus depreciation.

The 2010 Tax Relief Act set the Section 179 amount at $139,000 for tax years beginning in 2012, with the asset addition phase-out threshold beginning at $560,000 (both of these are the inflation-indexed amounts). This means that once qualifying asset purchases reach $699,000, taxpayer’s are ineligible to take a Section 179 deduction. Previously, the Small Business legislation allowed the Section 179 allowance to be $500,000 for taxable years beginning in 2011, with the asset addition phase-out beginning at $2,000,000.

For tax years beginning in 2011, $250,000 of a taxpayer’s $500,000 Section 179 allowance may be applied to qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. There is also a taxable income limit aspect that factors into the amount of Section 179 that can be taken.

The changing Section 179 limits apply based upon a taxpayer’s fiscal year. The $139,000 applies to tax years beginning in 2012, and the $500,000 applies to tax years beginning in 2011. The bonus depreciation amounts are based upon a calendar year. 50% bonus depreciation applies to calendar year 2012 and the 100% bonus applies to calendar year 2011. For example, a taxpayer with a taxable year that goes from September 1, 2011 to August 31, 2012 is eligible for $500,000 limit of Section 179. Their qualifying assets that are placed in service between September 1, 2011 and December 31, 2011 would be eligible for the 100% bonus depreciation. Those qualifying assets that are placed in service between January 1, 2012 and August 31, 2012 would be eligible for the 50% bonus depreciation.

Contact us with further questions.