Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Newsletter Sign-up
Site Search
Site Map
Tell A Friend About This Website
Informational Booklets   


Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

Businesses Receive Temporary Depreciation Bonus

With the enactment of the Job Creation and Workers Assistance Act of 2000, small businesses buying new property may now take a generous, upfront thirty-percent (30%) depreciation bonus.  The offer is available only for a limited time, many states are not allowing the bonus, and some businesses may come out better from a tax standpoint by not taking the offer at all.

What property is covered by this bonus? Generally, property with a class life of less than 20 years will be considered relevant.  Everyday examples include certain computer software, qualified leasehold improvement property and water utility property.  The largest determinant is that the property must be new.  Only funds used to recondition or rebuild property can bypass this clause.[Journal of Financial Planning, August 2002]

An example of how this deduction works is as follows:  For instance, a business spends $200,000 on machinery with a seven-year depreciable life basis.  The first-year standard depreciation by itself would be $28,580.  The thirty-percent (30%) bonus depreciation would be $60,000.  Because the thirty-percent (30%) bonus is calculated first, and the standard depreciation rate is calculated on the remaining seventy-percent (70%), the total first-year write-off is an astounding $80,006!

A business can also parlay the thirty-percent (30%) bonus depreciation with the Section 179 expense deduction, for which the maximum in 2002 is $24,000 ($25,000 in 2003).  The $24,000 is taken off the top first, then the thirty-percent (30%) bonus is calculated on the remaining amount.  The standard depreciation amount is calculated on the leftovers.  In this example, including the full Section 179 expense, the total first-year write-off is $94,405—nearly half of the total cost of the equipment.

The law also throws in a special bonus depreciation for “luxury” vehicles.  “Luxury” in this sense is defined as any non-electric car, light truck or minivan used for business that costs more than $15,300.  Businesses could take a maximum $3,060 deduction for these vehicles in 2002.  Under the bonus depreciation, businesses can take an additional maximum of $4,600, for a total first year deduction of $7,660.  Some large passenger vehicles (mostly SUVs) escape these “luxury” auto rules and are entitled to the thirty-percent (30%) bonus depreciation regardless.

For the thirty-percent (30%) bonus and the vehicle deduction, the property must have been purchased after September 10, 2001, and before September 11, 2004.  Additionally, it must be placed into service no later than December 31, 2004.

To make sure the Alternative Minimum Tax (AMT) does not negate some of these benefits, Congress allows the bonus deduction for purposes of computing AMT.  However, states have yet to catch the generosity bug.  Some states simply do not allow the new bonus and others are taking steps to disallow it.

The intent of the federal bonus is to stimulate business investment.  However, keep in mind that though accelerating depreciation with the bonus frees up more cash in the first year for the business owner, it does not reduce the overall amount that owners can depreciate.  That total is still limited to the adjusted cost basis.

As previously mentioned, some businesses may find it more advantageous from a tax perspective to not take the bonus.  This might include businesses with net-operating loss carryovers about to expire, or those who anticipate a higher tax bracket in future years.  But usually it is more advantageous to save taxes today rather than tomorrow, so the numbers will need to be evaluated to see if it is really worth it to elect out.

A business must specifically “elect out” of the bonus depreciation, if that is the strategy chosen.  If the election is made, then the decision applies to all property for that year with that particular election schedule, such as all five-year property or all seven-year property.

Busineses who bought qualifying property in 2001 (after September 10), but who were unable to take the deduction on their 2001 returns, may want to consider filing amended returns.  The IRS recently issued guidelines on how to recoup missed bonus depreciation on 2001 returns.

For Further information on how businesses can receive a temporary depreciation bonus contact James J. Holtzman, CPA at (412) 635-9210 Extension 19.

  • New Deduction Rules For Business Owners
  • ''New and Improved'' QSBS Tax Break
  • Six Tax Items For Small Businesses
  • Now Is A Perfect Time To Open A New Business
  • Do You Know If Your Business Really Is Small?
  • 4 Estate Issues For Business Owners
  • Self-Employed? Map Out Tax Details
  • 10 Easy Steps To Take If Opening A New Business
  • To Buy Or Not To Buy: That Is The Business Franchise Question
  • Ever Considered Helping Your Adult Child Open A Business?
  • Do You Know What Kind Of Business Not To Open?
  • Do You Plan To Move Your Business To A New State?
  • Dispel These 7 Popular Myths About Retirement
  • 4 Retirement Plan Options For Your Small Business
  • Are Stocks Overpriced And Forming A Bubble?
  • 4 Steps To Creating A Dynamic Business Budget
  • Can An Underfunded Small Business Startup Be Successful?
  • What Happens If You Have Excess Capital Losses?
  • This Is Not Granddad's 'Defined Benefit Plan'
  • Despite Much Pessimism, Slow Growth Persists
  • How To Take Your Section 179 Deduction To The Max
  • Squeeze More Out Of Bonus Depreciation Deductions
  • A Common Error In Powers Of Attorney
  • For The Self-Employed: 4 Retirement Plan Choices
  • Which States Are The Most Friendly To Businesses?
  • How Economic Myths Distort Investment Outlook
  • Don't Forget About Roth 401(k)
  • REITs: A Great Diversification Investment
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • The Twenty Top Tax Breaks In The New 2010 Tax Act
  • Investing Defensivley Does Not Mean Deserting Stocks
  • 401(k) Alternatives For Business Owners
  • Tax Court Okays Deducting Cost Of MBA
  • Employers Find Ways To Mitigate Liability On 401(k)s
  • Working Longer: What's A Post-Retirement Job Worth?
  • Slash Taxes By Swapping Like-Kind Assets
  • Transferring The Family Business To Your Heirs
  • Business Owners Get Big Tax Cuts In Recovery Act
  • Move Fast To Corral Emergency SBA Loans
  • Risk Management
  • Estate Taxes And The Obama Administration
  • Gifting A Business Can Cut Estate Taxes
  • A Little Bond Logic Yields Insights
  • Avoiding The IRA Rollover Crackdown
  • Ruling Cites Business Owner Responsibility to 401 (k) Plans
  • Ruling Cites Business Owner Responsibility to 401(k) Plans
  • How Much Is Your Business Worth?
  • Managing Cash Flow In Tight Times
  • When Times Are So Scary, Opportunities Emerge
  • Avoid Being Accused Of Insider Trading
  • Lifecycle Funds May Pose A Hidden Danger
  • Funding A Friend's Business Venture
  • Beware Of Social Security Identity Theft
  • Regulatory Guidelines Update
  • Small Business And Work Opportunity Tax Act
  • The Oil Patch Profit Squeeze
  • Free Credit Reports Available Online
  • Understanding the Importance of a Fiduciary Standard
  • Energy Systems Scale and Timeline
  • Timber As A Liquid Investment
  • Timber Facts
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Bank Loan Funds - A Primer
  • Ethanol: Salvation or Panacea?
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • A Primer On Managed Futures
  • Identity Theft: What Documents Should You Shred Or Store?
  • The Case For Industrial Metals
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • Know The Score
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • How Volatile Can The Stock Market Be?
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • Too Many ''Phish'' In The Sea
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft : Help Is On Its Way
  • Identity Theft: Tips To Protect Yourself
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Exit Gracefully: How Business Owners Should Plan For A Comfortable Retirement
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • IRS Refuses Change Of Section 179 Election To Expense Depreciable Property
  • Small Businesses Need To Be Aggressive On Costs
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Home Office Deductions: Hoops To Jump Through
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • Year-End Tax Defferal Planning
  • How To Find A Great Financial Advisor
  • Is It Time To Find A New Financial Advisor?
  • What Is Risk?
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • Businesses Receive Temporary Depreciation Bonus
  • Understanding Deflation
  • Is Your 401(k) Plan A Failure?
  • Succession Planning: Developing A Plan For Your Business
  • The ERISA Retirement Plan Law Spells Out Fiduciary Issues
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Tax Issues To Consider When Buying A Long-Term Care Policy
  • Yesterday's Great Companies
  • Businesses Should Be Aware Of States' Use Taxes
  • Expanded Retirement Plan Contribution Limits Create New Opportunities For Business Owners
  • Succession Planning: Developing A Plan For Your Business

  • ©2018 Legend Financial Advisors, Inc.®. All rights reserved.