New Depreciation rules in the 2010 Tax Act

Additional first-year depreciation in the 2010 Tax Relief Act.

The recently enacted 2010 Tax Relief Act includes a wide-ranging assortment of tax changes affecting both individuals and business. On the business side, one of the most significant changes provides incentives for businesses to invest in machinery and equipment by allowing for faster depreciation deductions. By acting before year-end, this new provision can benefit your 2010 taxes.  Here are the details.

Expansion and extension of additional first-year depreciation. Businesses are allowed to deduct the cost of capital expenditures over time according to depreciation schedules. In previous legislation, Congress allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property, and certain other new property, placed in service in 2008, 2009, or 2010, by permitting the first-year write-off of 50% of the cost. The new law extends and temporarily increases this additional first-year depreciation provision. For qualified property additions placed in service after September 8, 2010 and through December 31, 2011, the new law provides for 100% additional first-year depreciation. In other words, the entire cost of qualifying property placed in service during that time frame can be written off, without limit.
Fifty percent additional first-year depreciation will apply again in 2012.
The new law leaves in place the existing rules as to what kinds of property qualify for additional first-year depreciation. Generally, the property must be (1) depreciable property with a recovery period of 20 years or less; (2) computer software; or (4) qualified leasehold improvements. Also the original use of the property must commence with the taxpayer – used machinery doesn't qualify. 

If you would like more details about the new cost recovery provisions or any other aspect of the new legislation, please do not hesitate to call.