Congress has enacted the American Taxpayer Relief Act of 2012 (2012 Taxpayer Relief Act), which provides significantly increased incentives for business investment in capital and equipment.
The 2012 Taxpayer Relief Act extends the 50-percent first-year bonus depreciation allowance for one year to apply to qualifying property placed in service through 2013 (through 2014 for certain longer-lived and transportation property). The bonus depreciation allowance rate of 50 percent remains unchanged.
Under the extension provisions, a corporation also is permitted to increase the minimum tax credit limitation by the bonus depreciation amount with respect to certain property placed in service after December 31, 2007 and before January 1, 2014 (January 1, 2015 in the case of longer-lived and transportation property).
In addition to the bonus depreciation changes, the 2012 Taxpayer Relief Act increases the deduction and investment limits under Code Sec. 179. Generally, Code Sec. 179 permits a business that satisfies limitations on annual investment to elect to deduct (or “expense”) the cost of qualifying property rather than depreciate the cost over time. For tax years beginning in 2012 and 2013, taxpayers are permitted to expense up to $500,000 of the cost of qualifying property under Code Sec. 179, reduced by the amount by which the qualified investment exceeds $2,000,000. Qualifying property includes depreciable tangible personal property purchased for use in the active conduct of a trade or business. However, for tax years beginning in 2014 and thereafter, the maximum expense deduction permitted drops to $25,000 of the cost of qualifying property placed in service for the tax year, with a maximum investment limit of $200,000, not indexed for inflation.
The incentives for investing in business property in 2012 and 2013 are significant. Because these provisions are temporary, planning for your capital and equipment acquisitions and retirements is essential. If you have any questions about how these developments apply to you, or about any other aspects of this legislation, please contact our office at your convenience.
George V. Famiglio, Jr, CPA/PFS, CFP, CFS, CGMA. Est. 1971
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