Extending the bonus depreciation for the entire year of 2012 was great news for small businesses but 2012 is almost over and all qualifying property has to be placed in service before January 1 2013 to get the bonus depreciation deduction of 50%. Here are some general guidelines to help you determine if your property qualifies for the bonus.
In order for property to qualify for the depreciation bonus the property in question has to meet certain requirements. Some of the requirements are self-explanatory. For example the property must be new and it has to have a recovery period of 20 years (or less). If you are using the bonus on water utility property it must be MACRS. Some computer software qualifies for the bonus and its depreciable over three years.
Leasehold improvements (improvements made to the interior of a non-residential property) can also qualify for the bonus depreciation but they have their own requirements.
To qualify the improvement had to first be put in service no more than three years after the building was put in service.
The lessee (who is receiving the improvement) and the lessor (who is making the improvement) cannot be related either through marriage or through blood.
Any costs the lessor takes on for certain improvements do not qualify for the bonus. Some of these improvements include enlargements making changes to common areas or improving internal/structural framework putting in escalators/elevators etc.
Bonus depreciation is allowed in full for alternative minimum tax purposes so no AMT adjustment is required on the regular MACRS deduction.
Bonus depreciation is also allowed when your business has a loss unlike Section 179 depreciation discussed in our last blog.
Just as some property must meet certain requirements to qualify for the bonus there are some types of property that are excluded from the bonus. For example property that is bought used and disposed of in the same calendar year is not qualified. Property that is used for business and then put into personal use (in the same calendar year) doesn’t quality.
In addition to these requirements and exclusions there are some general things to keep in mind. When depreciating any property make sure you’re using the correct depreciation method to get an accurate amount. Also keep in mind that a taxpayer may elect out of bonus depreciation with respect to any class of or classes of property.
While these are the basic guidelines to using the bonus depreciation that’s about to expire on January 1 2013 you should consult a Louisville CPA to get the most out of your property bonus.