Economic Stimulus Act Depreciation Changes
Posted: 8/25/2009
2009 Changes to Depreciation
Ssection 179 expensing: Section 179 allows taxpayers to immediately write off qualifying purchases as opposed to depreciating the cost over the asset’s life. This is an immediate deduction that otherwise would be deferred.
Taxpayers can take up to $250,000 in section 179 expensing during 2009 as long as they stay under the $800,000 annual acquisition limit. The $250,000 section 179 is scheduled for 2009 only. In 2010 the section 179 election will be reduced to $125,000 and in 2011 the section 179 election is further scheduled to be reduced to $25,000.
When the cost of qualifying property purchased exceeds the annual acquisition limit, it reduces the amount of section 179 expense allowed dollar for dollar. For example, if a taxpayer purchases $900,000 in qualifying property the section 179 expense allowed is reduced by $100,000 down to $150,000.
Bonus depreciation is allowed for an additional year:
The 2008 bonus depreciation has been extended through 2009.
For new property only, 50% of the asset’s cost is eligible for first year bonus depreciation. The asset must have a depreciable life of 20 years or less to elect bonus depreciation.
Effective date differences:
For calendar year taxpayers, both the section 179 and bonus depreciation are effective for calendar year 2009. However for fiscal year businesses, the expanded section 179 applies to the fiscal year beginning in 2009, while the 50% bonus depreciation applies from January 1 to December 31, 2009.
Depreciable lives of farm machinery:
For 2009 only, farm machinery and equipment is depreciable over 5 years instead of the traditional 7 years.
Tax planning summary:
For taxpayers considering new investment or expansion the incentives for proceeding during 2009 are greater than waiting until a later year. Current year deductions allowed by the section 179 expensing and bonus depreciation can reduce the effective cost of purchasing new machinery and equipment.
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