Tax Legislation Update: 2010 Tax Relief Act and the Effect on Fixed Assets Management
By Nancy Faussett, CPA
Publication Date: 12/22/2010
On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853) was signed into law by President Obama. Aside from the 13-month extension of unemployment benefits through the end of 2011, this latest tax legislation contains a multitude of important provisions affecting both individual taxpayers and businesses. While mostly it extends a large number of expiring (and expired) tax benefits, it also contains a few new ones. Probably the most significant changes are the extension of the Bush-era tax cuts, an AMT patch, a temporary allowance of 100% expensing using bonus depreciation (100% bonus depreciation), changes to the estate tax, and a one-year employee payroll tax cut.
Several of the most significant provisions in this Act affect fixed asset management and these I will describe below.
Bonus Depreciation
The Act makes the following significant changes to the bonus depreciation deduction:
- Extends the bonus depreciation deduction for two more years, through 2012 (through 2013 for certain aircraft and long-production-period property).
- Increases, to 100%, the bonus depreciation deduction for qualifying property placed in service after September 8, 2010, through 2011 (through 2012 for certain aircraft and long-production-period property).
Therefore, although 100% expensing is only for about 16 months, since the extension of bonus depreciation is for two years, 50% bonus depreciation will still be allowed during 2012 (and during 2013 for certain aircraft and long-production-period property).
- Extends the placed-in-service deadline for the $8,000 increase in the first-year depreciation limit for qualifying luxury vehicles from Dec, 31, 2010 to Dec. 31, 2012. This means that for qualifying automobiles placed in service during 2011, the maximum amount of depreciation is now $11,060 in the placed-in-service year and for qualifying trucks and vans placed in service during 2011, the maximum amount of depreciation is $11,260 in the placed-in-service year.
- Extends the provision allowing corporate taxpayers to elect to accelerate the AMT and research credits in lieu of bonus depreciation for taxable years 2011 and 2012.
- Extends the provision allowing bonus depreciation on "specified GO Zone extension property" placed in service after 2009 and through 2011. This affects nonresidential real property and residential rental property that is specified Gulf Opportunity Zone extension property. Also included is Go Zone property, substantially all of the use of which is within a qualifying building and which is placed in service no later than 90 days after the building is placed in service.
Section 179 Expense
Looking ahead to 2012 and later, the Act makes several important changes to Section 179 expensing.
For tax years beginning in 2012, the Act:
- Temporarily increases Section 179 expensing by changing the $25,000 scheduled 179 amount to $125,000 and changing the $200,000 scheduled threshold amount to $500,000. Both of these amounts will be indexed for inflation.
- Extends the taxpayer’s ability to revoke a Section 179 election without IRS’ consent, if done before 2013.
- Extends the inclusion of computer software as qualifying Section 179 property, if it is placed in service before 2013.
For tax years beginning after 2012, the Act:
- Provides a $25,000 maximum Section 179 amount and a $200,000 phase-out threshold. These amounts will not be adjusted for inflation.
Note that the Act does not extend the temporary inclusion of certain lease hold improvement property, restaurant property, and retail improvement property in the definition of Section 179 qualifying property for years beginning in 2010 and 2011.
Cost Recovery Periods
- The Act extends the 7-year recovery period for motor sports entertainment complexes retroactively for property placed in service before 2012.
- The Act extends, retroactively, the provision for accelerated depreciation, using shorter depreciation recovery periods, allowed on qualifying business property on an Indian Reservation, if placed in service before 2012.
- The Act extends the provision allowing a 15-year recovery period for qualifying leasehold improvements; qualifying restaurant buildings and improvements; and qualifying retail improvements, if placed in service before 2012. Such property must be depreciated using the straight-line method.
Credits Affecting Fixed Assets
- Extends the Alternative Fuel Vehicle Refueling Property Credit (Section 30C) for non-hydrogen related property placed in service before 2012.
- Extends the increased GO Zone Rehabilitation Credit (Section 1400N) retroactively for two years, through 2011. The increased rehabilitation credit is 13% of qualified expenditures for qualified rehabilitated buildings and 26% of qualified expenditures for certified historic structures in the GO Zone.
- Extends the Low-Income Housing Credit rules for buildings in the GO Zone (Section 1400N), if placed in service before 2012.
Film and Television Productions
The Act extends the special expensing rules for certain film and television productions (Section 181) retroactively for qualifying productions beginning before 2012. These rules apply to the first $15 million of costs of qualified television or film productions, which may temporarily be expensed rather than capitalized.
Mine Safety Equipment
The Act extends the election to expense mine safety equipment (Section 179E) retroactively for property placed in service before 2012. The election is generally available for 50% of the cost of any qualified advanced mine safety equipment property.
Download a PDF Version of this Tax Legislation Update »
Related Information
Best Practices in Fixed Assets Management: A Resource Guide for Claiming Bonus Depreciation »
2010 Tax Relief Act and the Effect on Business Returns »
2010 Tax Relief Act and the Effect on Individual Tax Returns »
About BNA Fixed Assets Software
BNA Fixed Assets™ Software provides you with the ability to document your depreciation and amortization policies through Asset Type templates and allows you to automate the enforcement and implementation of these policies when performing data entry for fixed assets. This eliminates potential errors from misclassifying assets, automates the process of entering assets, enforces the use of a company’s depreciation and amortization policies, greatly reduces the volume of data required to enter each asset in the system, and, above all, guarantees compliance with GAAP rules and IRS regulations.
BNA Fixed Assets provides an annual automatic update of its fixed asset software as well as periodic updates as tax law changes. What’s more, the fixed asset management software speeds the data entry process by allowing you to copy and paste data for multiple assets from an Excel spreadsheet into BNA Fixed Assets, for greater efficiency and accuracy. With BNA Fixed Assets, you’ll benefit from having the best solution available on the market today to maximize productivity, comply with GAAP rules and IRS regulations, and meet all of your financial and tax reporting requirements.
Learn more about BNA Fixed Assets Software »
About BNA Software
Founded in 1983, BNA Software develops professional software solutions for tax, accounting, and financial planning professionals. With category-standard software including BNA Corporate Tax™ Analyzer, BNA Income Tax™ Planner and BNA Fixed Assets, BNA Software is the solution of choice for accounting, law, and financial planning firms, as well as corporations of every size. More than 60,000 customers including the IRS, depend upon BNA Software for the highest degree of tax, regulatory, and compliance expertise available in the market.
