Available Tax Benefits for Fixed Assets Acquired by December 31, 2011
Volume 2011 / Issue 6
October 3, 2011
Current tax law contains favorable provisions for qualifying fixed asset acquisitions placed into service by December 31, 2011. These laws enable taxpayers to claim an immediate deduction for the cost of qualifying property, as opposed to depreciating the cost over a number of years, which can range from 3 to 15. However, these benefits are scheduled to be reduced or eliminated thereafter, so if your business is contemplating an additional investment in fixed assets, you may want to consider making that move by December 31, 2011.
Bonus Depreciation:
In order to stimulate new investment, Congress has passed tax laws in recent years that provide an immediate deduction for some or all of the cost of qualified fixed asset acquisitions. This immediate deduction or “bonus depreciation” has been increased from 30% to 50%, and recently increased to 100% of the cost. The 100% bonus depreciation rules only apply to qualifying acquisitions acquired and placed into service by December 31, 2011. The benefit drops back down to 50% for qualifying assets acquired and placed into service in 2012, and then expires for subsequent acquisitions.
Qualifying assets must be new (used property does not qualify), have a recovery period for tax purposes of 20 years or less, and be placed into service by December 31, 2011. For example, if your business acquires new computers on the morning of December 31, 2011, installs them in the early afternoon, and starts using them at 4:00 PM; this investment should qualify for a 100% bonus depreciation deduction on your 2011 tax return. Special rules apply for self-constructed assets, certain aircraft and long-production period property, which should be discussed further.
Section 179 expensing:
Businesses with taxable income may be eligible for an immediate deduction of up to $500,000 for the cost of qualifying property that is acquired in 2011 (a phase-out exists when total acquisitions for the year exceed $2 million, which eliminates this benefit for many larger businesses). For subsequent years, the maximum deduction is scheduled to drop down to $125,000 and the phase-out starts at total acquisitions of $500,000.
Similar to the bonus depreciation rules, this benefit applies even if the qualifying asset is acquired and placed into service as late as December 31, 2011. However, the Section 179 expensing benefit also applies to used property.
Heavy trucks or SUVs:
Special rules apply to most passenger autos and light vans and trucks, which would limit the amount of bonus deprecation or Section 179 expensing. However, heavy trucks or sport-utility vehicles (SUVs) built on a truck chassis and rated at 6,000 pounds gross vehicle weight are eligible for full bonus depreciation and Section 179 expensing. Starting in 2012, the maximum Section 179 expense that can be claimed on heavy passenger trucks and SUVs drops to $25,000. Some states place additional restrictions on the deductions claimed on heavy truck and SUV purchases, which could reduce the benefit.
The summary above presents an overview of the potential tax benefits available for qualifying fixed asset acquisitions, which business may want to consider by December 31, 2011. If you would like more details about any aspect of the provisions, please give us a call.
