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On February 17, 2009 the American Recovery and Reinvestment Act of 2009 was signed into law. This Act extends the additional tax depreciation initiated in 2008 to all equipment placed in service prior to January 1, 2010.
What is Bonus Depreciation?
For qualifying equipment, the Act allows the buyer to take a 50% Bonus Depreciation on its 2009 taxes.
- Economic Stimulus Act allows additional first-year depreciation of 50% of purchase cost.
- Bonus Depreciation helps businesses that buy equipment this year to reduce their 2009 taxable income.
- Applies to purchases of tangible property with a MACRS recovery period of 20 years or less.
- Equipment must be new, purchased, and placed in service prior to January 1, 2010.
- The Bonus Depreciation is due to expire 12/31/09.
What is Section 179?
Section 179 allows small businesses to depreciate up to 100% of the equipment cost in year one.
- Eligibility for this deduction is based on the total amount of the small business’ capital expenditures during 2009.
- This deduction can be combined with Bonus Depreciation.
- If capital expenditures total less than $800,000, owner may qualify for a dollar-for-dollar deduction, up to $250,000.
- Every dollar spent over $800,000 is subtracted from the total deduction amount. If a company’s capital expenditures exceed $1,050,000, the company does not qualify for Section 179.
- Limited to pre-deduction income, but any disallowed losses can be carried forward indefinitely.
- Equipment can be new or used. Must be placed in service in 2009.
- Section 179 Bonus is due to expire 12/31/09.
Don’t miss this opportunity — these incentives end December 31, 2009.
This overview is not intended to provide tax or accounting advice. Contact your tax advisor with tax questions about potential tax savings and for details regarding the bonus depreciation in 2009.