In addition to saving the Section 179 deduction, Congress also surprised many by extending the “Bonus Depreciation” allowance on qualified new equipment through 2013 for businesses. Under the Fiscal Cliff Deal, businesses can write off one half of the cost of qualifying new equipment in a single tax year.
Bonus Depreciation was extended back in 2010 to assist businesses recovering from the Recession. In 2011, businesses could depreciate up to 100% of qualifying new equipment which then dropped to 50% in 2012. The deduction was set to expire at the end of 2012.
Eric Savitz reported for Forbes in “How the Fiscal Cliff Deal Boosts the Tech Sector” that Bill Whyman, ISI Group technology analyst, wrote in a brief research note, “We believe the major impact will be improved business confidence, leading to greater willingness of business to invest their record cash hordes. Both these measures also improve cash flow, and on the margin have a positive impact on spending.”
The tech sector isn’t the only sector pleased with the extension of bonus depreciation. Speaking of the passage of bonus depreciation, Dave Thompson, president of TEC Equipment Inc, told Transport Topics, that “not everybody was prepared to buy and now they might. That depreciation will be a bonus; 100% is better, but 50% is pretty nice.”
According to the IRS publication, “Bonus Depreciation and Increased Section 179 Deduction under the American Recovery and Reinvestment Act”
The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service. You may be able to take an additional first year special depreciation allowance for certain qualifying property (defined below). The allowance is an additional deduction of 50 percent of the property’s depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction).
Property that qualifies for this special depreciation allowance includes the following.
- Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less
- Water utility property
- Off-the-shelf computer software
- Qualified leasehold improvement property