Tax Tips
First-Year 30% Bonus Depreciation - July 2002
Richard Scrivanich - Partner
In an effort to stimulate the economy, Congress is giving taxpayers an extra 30% first-year depreciation writeoff for most new capital assets (other than buildings) acquired after Sept. 10, 2001 and before Sept. 11, 2004, and placed in service before 2005 (before 2006, for certain property with longer production periods). In effect, this additional writeoff means that you can recover more of the cost of a business asset in the year you place it in service.
What qualifies for the extra 30% depreciation writeoff? Most types of new, nonrealty assets, such as business machines, computers, most types of computer software, many types of production equipment, trucks, trailers, and business furniture.
New business autos also qualify for a bigger first year writeoff. The first-year depreciation dollar cap on new autos bought for business purposes is boosted by $4,600 effective for autos acquired after Sept. 10, 2001 and before Sept. 11, 2004. For qualifying autos bought after Sept. 10, 2001 and before 2003, that means a maximum first year writeoff of $7,660 (the regular $3,060 first year dollar cap plus $4,600). The extra writeoff applies only if the auto is used more than 50% for business, and is fully available only if the auto is used 100% for business.
Taxpayers also are entitled to an extra 30% depreciation writeoff for qualified leasehold improvements. In general, these are interior improvements made under a lease to commercial property (such as an office building or warehouse), and placed in service more than three years after the building was first placed in service. Certain structural improvements don't qualify, and neither do expansions. Additionally, the improvements generally must be acquired after Sept. 10, 2001, and before Sept. 11, 2004, and placed in service before 2005.
These depreciation changes are retroactively effective (that is, they apply to qualifying new property acquired after Sept. 10, 2001). As a result, returns that have already been filed for tax year 2001 (as well as 2000 returns of some fiscal-year businesses) will have to be amended to take advantage of the additional writeoff. However, under some circumstances a taxpayer may be better off not claiming the extra first-year depreciation deduction.
Please keep in mind that I've described only the highlights of this new depreciation provision. If you have any question concerning the new tax, please give me a call at (562) 698-9891.
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