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Bonus Depreciation for Year End Equipment Purchases

Today and next week we will continue to look at year-end tax planning as it relates to purchases of equipment.

An expanding and strengthening economy may mean that December 31, 2013 will be the end of the line for some stimulus-type tax breaks. Last week we talked about how this affects Code Sec. 179 expensing limits.

This week we will look at bonus depreciation for 2013.

Under current law, a 50% bonus first-year depreciation allowance applies to qualified property acquired and placed in service after December 31, 2011 and before January 1, 2014.

In general, an asset purchased in 2013 qualifies for the bonus depreciation allowance if it falls into one of the following categories:

  • Property to which the modified accelerated cost recovery system (MACRS) rules apply with a recovery period of 20 years or less

  • Computer software other than computer software covered by the amortization of goodwill and other intangibles rules of Code Sec. 197

  • Qualified leasehold improvement property

  • Certain water utility property

  • It is placed in service by the taxpayer before Jan. 1, 2014

  • Its “original use” commences with the taxpayer

This could be the last year for extra-generous luxury auto depreciation limits. If bonus first-year depreciation deductions come to an end at the close of 2013, so will the extra-generous first-year dollar limit on autos, light trucks, and vans subject to the luxury auto rules.

The first-year depreciation deduction for new vehicles that qualify for bonus depreciation is $8,000 more than the first-year depreciation limit that would otherwise apply.

For new vehicles bought and placed in service in 2013, and that qualify for bonus first-year depreciation, the boosted first-year dollar limit is $11,160 for autos, and $11,360 for light trucks or vans.

However, under current law, these boosted dollar amounts apply only for vehicles bought and placed in service before 2014. As a result, taxpayers thinking of buying a new auto, light truck or van for trade or business use should buy the vehicle and place it in service this year in order to lock in maximum first-year deductions.

Next week we will take a look at the possible disappearance of the 15 year write off and special expensing allowance for qualified leasehold improvement property, retail improvements, and restaurant property.

Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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