Tax Legislation Update: The Small Business Jobs Act and Bonus Depreciation
By Nancy Faussett, CPA
Publication Date: 10/05/2010
The Small Business Jobs Act of 2010 (H.R. 5297) was signed into law on September 27, 2010. With the understanding that for small businesses to be able to expand, they need both tax cuts and greater access to loans, the Act creates new and expanded tax incentives and a $30 billion loan fund. The Act includes both tax incentives and revenue raisers to pay for them. This article describes the bonus depreciation provisions that directly affect fixed asset management.
50% Bonus Depreciation Modifications:
Extension: Bonus depreciation is extended for one year, for property placed in service in 2010 (and certain long production period property and transportation property placed in service in 2011).
Percentage of completion: Bonus depreciation on assets with a recovery period of seven years or less is to be disregarded when computing the percentage-of-completion for long-term contracts. In other words, the cost of qualified property taken into account as a cost allocated to the contract is to be done as if bonus depreciation had not been claimed but rather MACRS had been applied to its entire depreciable basis.
This applies to such property placed in service after 2009 and before 2011 (before 2012 for longer-production period property). This will allow contractors to benefit from bonus depreciation even if they do not finish a contract within the same year.
Luxury vehicles: The allowable amount of depreciation on a luxury vehicle (defined in IRS Section 280F(d)(5)) on which bonus depreciation is claimed is increased if the vehicle is placed in service in 2010. This additional depreciation, up to $8,000, is only for the year in which the vehicle is placed in service.
This provision extends, for one more year, the additional $8,000 already allowed for qualifying vehicles placed in service in 2008 and 2009. Therefore, qualifying luxury automobiles placed in service in 2010 may claim a maximum depreciation deduction of $11,060 and qualifying trucks and vans placed in service in 2010 may claim a maximum depreciation deduction of $11,160.
What You Should Consider – Bonus Depreciation
There are number of challenges associated with applying the bonus depreciation provisions of the Small Business Jobs Act of 2010:
- The need to calculate and correctly apply the bonus depreciation rules for qualifying assets,
- The need to select the class or classes of assets on which you want to claim bonus depreciation,
- The need to run a report to determine the amount of bonus depreciation claimed for a given year,
- The need calculate the maximum allowable amount of depreciation expense on luxury vehicles so that it includes the additional amount of bonus depreciation,
- The need to decide whether you should claim bonus depreciation and/or Section 179 on an asset,
- The need to determine if the state income tax return allows bonus depreciation to be claimed,
- The need to calculate depreciation on assets with a recovery period of seven years or less with and without bonus depreciation if using percentage-of-completion for long-term contracts, and
- The need to correctly determine the basis and gain/loss amounts for assets on which bonus depreciation is claimed.
Related Info:
Changes in Section 179 Expense »
Miscellaneous Fixed Assets Management Provisions »
Take Advantage of Bonus Depreciation with BNA Fixed Assets
The Small Business Jobs Act of 2010 includes a number of important bonus depreciation provisions that allow a business to claim valuable deductions. BNA Fixed Assets™ software provides comprehensive and up-to-date compliance management capabilities that allow you to take advantage of these tax law changes.
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For businesses using the percentage-of-completion method for long-term contracts, BNA Fixed Assets can calculate depreciation on qualifying assets both with and without bonus depreciation.
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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.
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