Special “bonus depreciation” provisions have been available as incentives to help stimulate the U.S. economy since 2008. Recently, the American Taxpayer Relief Act of 2012 (ATRA) extended 50% bonus depreciation availability to new asset additions placed in service prior to January 1, 2014 (certain specialized property may have a pre-January 1, 2015 in-service date requirement). Additionally, special 15-year write-offs and expensing provisions for qualified leasehold improvements, retail and restaurant improvements are set to expire at the end of 2013.
Finally, ATRA had extended previously enhanced Section 179 expensing provisions through 2013. For 2013, businesses with up to $2,000,000 of asset additions qualifying as Section 179 property placed in service may elect to immediately expense up to $500,000 of the asset cost. The $500,000 expensing allowance is phased down, dollar for dollar, to the extent the Section 179 additions exceed $2,000,000 in 2013.
Given the somewhat improving state of the U.S. national economy, the bonus depreciation benefits, other deprecation benefits, and the enhanced Section 179 expensing provisions may not be extended beyond 2013. If the Section 179 expensing enhancements are not extended, the Section 179 expensing limits are set to drop to allow only a $25,000 write-off in 2014 and this allowable expensing will decrease dollar for dollar to the extent Section 179 additions in 2014 exceed $200,000. Thus, to the extent 2014 Section 179 asset additions exceed $225,000, there will be zero Section 179 expensing allowed in 2014 under 2014 tax law now in place.
Capital asset addition write-offs available to taxpayers in 2014 would be severely reduced as compared to 2013 should Congress and the President fail to extend depreciation and Section 179 benefits.
Taxpayers should be reviewing their capital improvement needs for the balance of 2013 and for 2014 to determine whether it makes sense to accelerate asset additions into 2013 versus 2014.
Given the many requirements for property to potentially qualify for either bonus depreciation or Section 179 treatment, please contact DS&B, Ltd. to discuss your specific situation. For example, trusts, estates, and passive investors may not qualify for Section 179 benefits. As another example, lessors of newer buildings may not be able to obtain bonus depreciation for leasehold improvements. Also, many states, including Minnesota restrict the immediate tax benefits of bonus and Section 179 write-offs so the state tax effects need to be considered.[Note: DS&B, Ltd. will be monitoring late 2013 U.S. Legislative activity that would extend any capital asset enhanced write-offs beyond the December 31, 2013 date.] Contact Paul Simons at (612) 630-5072 or your DS&B, Ltd. engagement partner at (612) 359-9630 to discuss your specific situation.
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