The Bonus Depreciation.

The 2010 Tax Relief Act benefits businesses by increasing 50 percent bonus depreciation to 100 percent for qualified investments made after September 8, 2010 and before January 1, 2012 (before January 1, 2013 for certain longer-lived and transportation property).

This provision is especially beneficial for businesses because bonus depreciation, unlike Code Sec. 179 expensing, is not limited to smaller companies, or capped at a certain dollar level. However, only new property qualifies for the 100 percent bonus depreciation (unlike Code Sec. 179 expensing, which can be claimed for both new and used property).

How does this help the health care industry?

In January 2011, XYZ medical practice, a calendar year business, buys $1 million of qualifying property eligible for the 100 percent bonus depreciation deduction. Under the 2010 Tax Relief Act's enhanced 100 percent bonus depreciation provision, XYZ medical practice will be able to claim a $1 million depreciation deduction for the property on its 2011 Federal tax return. This provision can also apply to the nonstructural components of construction of a new facility, remodeling of an existing facility, or an addition. Most of the states did not couple with this legislation including Iowa.

Additional Assistance.

Although enhanced 100 percent bonus depreciation is not extended into 2012, the new law does provide 50 percent bonus depreciation for qualified property placed in service after December 31, 2011 and before January 1, 2013.

Code Section 179 Expensing.

Over the years, Congress has repeatedly increased dollar and investment limits under Code Sec. 179 to encourage spending by businesses. For tax years beginning in 2010 and 2011, the 2010 Small Business Jobs Act increased the Code Sec. 179 dollar and investment limits to $500,000 and $2 million, respectively. For tax years beginning in 2012, the new law provides for a $125,000 dollar limit and a $500,000 investment limit (both indexed for inflation). Without this provision, the dollar and investment limits would have reverted to $25,000 and $200,000, respectively, for tax years beginning after 2011. Amounts that are not eligible for expensing due to excess investments cannot be carried forward and expensed in a later year; they may only be recovered through depreciation.

Iowa recently passed legislation to couple with this legislation and allow the correction to be made on the 2011 tax return in lieu of amending 2010. This change will allow you to “double-up” your Sec. 179 claim on your 2011 Iowa return.