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VIEWpoint Issue 1 | 2023
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Bonus depreciation will expire for most taxpayers at the end of 2013 unless Congress extends the provision. A 50 percent bonus depreciation deduction (the “special first-year depreciation allowance”) is allowed for the first year that qualifying property is placed in service. Bonus depreciation is available for property acquired after Dec. 31, 2007, and acquired and placed in service only before Jan. 1, 2014 (the “applicable period”).
The 50 percent rate is also available for property acquired pursuant to a binding written contract entered into during the applicable period. Self-constructed property for the taxpayer’s own use qualifies for bonus depreciation if the taxpayer begins manufacturing, constructing or producing the property during the applicable period. In addition, the 50 percent rate is extended one year to property acquired and placed in service before Jan. 1, 2015, for aircraft and property with a longer production period. Unlike the Code Sec. 179 expensing allowance, there is no limit on the overall amount of bonus depreciation that may be claimed.
The bonus depreciation rate was once 100 percent for qualified property acquired after Sept. 8, 2010, and before Jan.1, 2012, and placed in service before Jan. 1, 2012. A special election is available for taxpayers who want to claim 50 percent bonus depreciation instead of the 100 percent rate available in the latter part of 2010 and in 2011.
Qualifying property includes:
The property must be new property, and its original use must start with the taxpayer during the applicable period. Property is acquired when the taxpayer takes possession or control of the property and has the risk of loss. Property is placed in service when it is in a condition or state of readiness and availability for a specifically assigned function in a trade or business, or for the production of income.
Taxpayers must claim bonus depreciation unless they elect not to take any additional first-year depreciation. Called “election out,” this applies to all property in the class or classes for which the election is made, and property is placed in service for the tax year of the election. The election out may be revoked only with the IRS’s consent.
The election must be made by the due date (including extensions) of the tax return for the year in which the property is placed in service. Form 4562 provides instructions for making the election. The taxpayer must attach a statement to the return that indicates the property class for which the election is being made.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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