Tax Relief Job Creation Act of 2010 - 100% Bonus Depreciation

BUSINESS INCENTIVES - 100 Percent Bonus Depreciation

The 2010 Tax Relief Act boosts 50-percent bonus depreciation to 100-percent for qualified investments made after September8, 2010 and before January 1, 2012. The 2010 Tax Relief Act also makes 50- percent bonus depreciation available for qualified property placed in service after December 31, 2011 and before January 1, 2013. Certain long-lived property and transportation property is eligible for 100- percent expensing if placed in service before January 1, 2013.

IMPACT. This provision is one of the most expansive for businesses. Unlike Code Sec. 179 expensing, it is not limited to use by smaller businesses or capped at a certain dollar level.

COMMENT. The 2010 Small Business Jobs Act extended 50-percent bonus depreciation for one year (qualified property placed in service during 2010; 2011 for certain long-lived property and transportation property).

COMMENT. The 2010 Small Business Jobs Act also increased the Code Sec. 179 dollar and investment limits to $500,000 and $2 million respectively, for tax years beginning in 2010 and 2011. The new law provides for Code Sec. 179 expensing at a level of $125,000 for 2012 (see below). Bonus depreciation is not limited by the size of a taxpayer’s investments in qualifi ed property and it can generate net operating losses. Bonus depreciation, however, applies only to new property and is not exempt from certain uniform capitalization rules as is small business expensing.

Refundable credits in lieu of bonus depreciation.

Under the 2009 Recovery Act, a corporation otherwise eligible for additional
first year depreciation may elect to claim additional research or minimum tax credits
in lieu of claiming depreciation for qualified property placed in service after March 31, 2008 and before December 31, 2008. The 2010 Tax Relief Act generally extends similar treatment for two years, through December 31, 2012.

Code Sec. 179 Expensing

Congress has repeatedly increased the dollar and investment limits under Code Sec. 179 to encourage business spending. The 2010 Small Business Jobs Act increased the Code Sec. 179 dollar and investment limits to $500,000 and $2 million, respectively, for tax years beginning in 2010 and 2011. The 2010 Tax Relief Act provides for a $125,000 dollar limit (indexed for inflation) and a $500,000 investment limit (indexed for inflation) for tax years beginning in 2012 (and sunsetting after December 31, 2012). The 2010 Tax Relief Act also extends the treatment of off-the-shelf computer software as qualifying property if placed in service before 2013.

IMPACT. The $500,000/$2 million thresholds for tax years beginning in 2010 and 2011 were scheduled to revert to $25,000/$200,000, respectively, for tax years beginning in 2012 (both amounts not indexed for inflation)

COMMENT. Qualifi ed real property does not share in the expensing benefits allowed under the 2010 Tax Relief Act. Under the 2010 Small Business Jobs Act, a taxpayer can elect up to $250,000 of the $500,000 Code Sec. 179 deduction limit (subject to the investment limit) for qualified real property (qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property) for any tax year beginning in 2010 or 2011. The 2010 Tax Relief Act does not extend this treatment.