Johanson & Yau

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Section 179 Election and Bonus Depreciation Extended

IRS Code Section 179 allows a taxpayer to fully expense qualified fixed asset purchases in the year they were placed in service. For 2010 and 2011 the maximum Section 179 deduction for federal purposes was $500,000 (California is only $25,000). This deduction begins to phase out dollar for dollar for total fixed assets placed in service greater than $2 million. These limits for 2012 and 2013 are as follows.

Year Maximum Section 179 Deduction Phase out begins:
2010-2011 $500,000 $2,000,000
2012 $139,000 $560,000
2013 $25,000 $200,000

Bonus depreciation is the taxpayer’s second opportunity for accelerated deduction of new fixed assets placed in service during the year, and is claimed after the application of Section 179. Bonus depreciation has been extended through December 31, 2012. Not only has this been extended, but the bonus depreciation has been increased from 50% to 100% for assets placed in service after September 8, 2010 and before January 1, 2012. For assets placed in service after January 1, 2012, the original 50% bonus depreciation applies as seen in the summary table below.

Asset Placed In Service Bonus Amount
January 1, 2008 to September 8, 2010 50%
September 9, 2010 to December 31, 2011 100%
January 1, 2012 to December 31, 2012 50%

Bonus depreciation is not available for purchases of used assets. Bonus depreciation is an automatic deduction unless the taxpayer elects to opt out. If the election to opt out of the bonus depreciation deduction has been made, the IRS must give consent to revoke this election. There is no AMT adjustment for bonus depreciation, and if you claim or elect out of bonus for regular tax purposes, you must do the same for AMT purposes.

Bonus depreciation is an automatic deduction unless the taxpayer elects to opt out. If the election to opt out of the bonus depreciation deduction has been made, the IRS must give consent to revoke this election. There is not an AMT adjustment for bonus depreciation, and if you claim or elect out of bonus for regular tax purposes, you must do the same for AMT purposes.

The above description of Section 179 bonus depreciation is for Federal purposes only and represents only the highlights of the rules. Many other rules and limitations apply. Contact our office for assistance in applying these rules to your specific situation. California does not conform to any of the above guidelines.

For more information, please contact us at 408.288.5111.