If you are a business owner you are aware that when you buy equipment it is not an expense but a capital expenditure that you have to capitalize and then depreciate over a period of several years depending on the class life of the equipment. There are two code sections that business owners can take advantage of in order to expense the equipment in the year of purchase. The first one has been around forever & is called Section 179 depreciation expense. It allows business owners to expense 100% of the cost of the equipment if the business doesn’t purchase more than $ 500,000 in equipment during the year but the business must have a profit. Section 179 is not allowed to create a loss. The second code section has only been around since shortly after 9/11 when Congress wanted to stimulate the economy and first enacted bonus depreciation expense. It only applies to new equipment (not used) and if purchased after Sept 8, 2010 and before January 1, 2012 100% of the cost can be expensed. What is cool about this is when you take Section 179 depreciation expense on an asset if you sell it or dispose of it before it’s class life is up you have to recapture the excess depreciation. Bonus depreciation has no such rule, so if you get rid of the asset the very next year you will not have to recapture the excess depreciation. Not only that, but bonus depreciation can create a loss. And finally if you bought a piece of equipment in 2010 (after Sept 8th) and in 2011 you discover that you need the upgraded model you can trade it in and not only receive the 100% bonus depreciation deduction on the original asset in 2010 but you receive 100% bonus depreciation on the additional cost of the new model you traded for in the upgrade!
Pretty cool huh?!
4025 Automation Way #D1 (Map)
Fort Collins, CO 80525
Phone: 970-226-4686
My own major eccentricity by the way is short term van insurance cover so it facinates me how so many almost invariably intelligent car drivers won’t realise that thoughtless driving can be a destroyer of careers.
Interesting, but I don’t think the IRS would agree. From Pub. 946…
“When you dispose of property that you depreciated using MACRS, any gain on the disposition generally is recaptured (included in income) as ordinary income up to the
amount of the depreciation previously allowed or allowable for the property. Depreciation, for this purpose, includes the following…[sic]
Any special depreciation allowance previously allowed or allowable for the property (unless you elected not to claim it).”
I have to agree with Kristen P. There is a common misconception that bonus depreciation does not have to be recaptured….perhaps there was a small window of time when this was the case, but as it stands now, I believe it must be recaptured at the time of disposal.