Several significant tax law changes will come about as a result of legislation passed in September of this year and legislation passed in previous years that is set to expire at the end of this year.
One of the most significant is the Small Business Jobs Act of 2010. This law, signed by President Barack Obama in September, extends or increases several cost recovery incentives regarding the acquisition of new depreciable property used in a trade or business.
The law extends a 50 percent first-year bonus depreciation that had been set to expire at the end of 2009 until the end of this year. Under bonus depreciation, a company can accelerate depreciation that would otherwise be deducted in later years.
Qualifying equipment must be purchased and placed into service on or before Dec. 31.
“Even the depreciation deductions allowed with respect to passenger automobiles are increased under bonus depreciation,” says Walter M. McGrail, JD, CPA, a senior manager at Cendrowski Selecky PC. “Absent bonus depreciation, passenger automobiles are typically subject to a maximum depreciation deduction in the first year of approximately $3,000. For 2010, maximum first-year depreciation for passenger automobiles is $11,060 ($11,160 for light trucks).”
Unlike Section 179 expensing of the cost of newly acquired depreciable business property, adds McGrail, bonus depreciation is not limited by the size of the business or the dollar value of investment in new depreciable property.
Smart Business spoke with McGrail about the Small Business Jobs Act of 2010 and the key areas that businesses need to pay attention to in the coming months.
What is changing in regard to Section 179 expensing?
The new law increases the maximum deduction for newly acquired depreciable property to $500,000. Qualifying taxpayers may deduct up to $500,000 in the cost of qualifying depreciable property in the year of purchase in lieu of recovering the cost of such property in annual depreciation charges.
A taxpayer’s ability to obtain this deduction is limited by the overall investment in depreciable property for the year. However, the new law increases this overall limit from $800,000 to $2 million for tax years beginning in 2010 and 2011.
