Wipfli Alerts & Updates: Generous Depreciation Rules May Be Quickly Coming to an End


August 24, 2011
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If you have been recently contemplating making capital expenditures, it is important to remember that the generous depreciation rules that we have become comfortable with over the last four years may be quickly coming to an end. You will want to keep some important dates in mind to ensure that you don't miss out on maximizing your tax savings.

Bonus Depreciation
For the rest of 2011, taxpayers are able to deduct 100% of the cost of new (rather than used) equipment. This tax incentive was extended into 2012, but the rate is reduced to 50%.

In order to qualify for the 50% and 100% bonus depreciation, the assets purchased must have been originally used by the taxpayer ("new" rather than "used"), and they must have a recovery period of 20 years or less. Most tangible personal property will qualify, such as autos, trucks, machinery, and office equipment. It is important to keep in mind that autos, vans, and trucks may be subject to limitations.

Section 179 Deduction
In 2011, taxpayers can deduct $500,000 in capital expenditures under Section 179 as long as they don't purchase more than the $2 million phase-out threshold. For every dollar of assets purchased above the $2 million phase-out threshold, the deduction will decrease by an equal amount. Starting in 2012, this benefit decreases to $125,000, with a $500,000 phase-out threshold. SUVs are limited to $25,000 in Section 179 deduction, but they can receive the 100% bonus depreciation for any amounts over the $25,000.

For 2011 only, the Section 179 deduction is available for qualified real property improvements. Qualified real property improvements include improvements to the interior of leased or retail nonresidential buildings and restaurant buildings. Interior improvements for leased property must have been completed more than three years after the date the building was first placed into service.

What Now?
It is unlikely that bonus depreciation will be extended past 2012. In addition, the Section 179 deduction will probably remain at the inflation-adjusted $125,000 amount going forward. Therefore, it is very important that you properly time your capital expenditures. Please contact David Paczak at 815.484.5682 or your Wipfli relationship executive immediately to discuss the possible tax benefits that can be obtained from your capital expenditures.

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