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Taxes….Phew! Depreciation Extenders for 2014

Posted Tuesday, January 20, 2015 by Stuart W. Margolis, CPA, MT, Margolis Partners LLC.

Extension of Bonus Depreciation and Code Sec. 179 Expense: 2014 Tax Prevention Act

alt textBy Stuart W. Margolis, CPA, MT, Margolis Partners LLC

Congress has enacted the Tax Increase Prevention Act of 2014 (2014 Tax Prevention Act), which provides a one year extension of popular incentives for business investment in capital and equipment. These incentives include an extension of bonus depreciation provisions and temporary increases in the deductible amount and investment limitation under Code Sec. 179. Also added, Corporations may continue to accelerate the AMT credit by forgoing bonus depreciation on certain property placed in service in 2014 if you have AMT credits available and the election is made not to take bonus depreciation.

Bonus depreciation. The 2014 Tax Prevention Act extends the 50-percent first-year bonus depreciation allowance for one year to apply to qualifying property acquired after December 31, 2007 and placed in service before January 1, 2015 (or before January 1, 2016, for certain longer-lived and transportation property). There is no limit on the total amount of bonus depreciation that may be claimed in any given tax year, and the bonus depreciation allowance rate of 50 percent remains unchanged.

Although the placed-in-service deadline for 50-percent bonus depreciation property with a longer production period is extended one year through December 31, 2015, only pre-January 1, 2015 progress expenditures are taken into account in computing the bonus depreciation allowance.

As a reminder, the 50% depreciation is taken first, then regular MACRS or accelerated depreciation on the remaining 50%. By example, a 5 year asset worth $10,000 received $6,000 in depreciation in 2014; $5,000 in bonus depreciation and another $1,000 (20%) on the remaining $5,000 using the regular MACRS depreciation method.

Code Sec. 179 expense deduction. In addition to the bonus depreciation changes, the 2014 Tax Prevention Act retroactively extends the increased deduction and investment limits under Code Sec. 179. Generally, Code Sec. 179 permits a business that satisfies limitations on annual investment in fixed asset to elect to deduct (or “expense”) the cost of qualifying property rather than depreciate the cost over time.

For tax years beginning after 2009 and before 2015, 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 in fixed assets exceeds $2,000,000. Qualifying property includes depreciable tangible personal property purchased for use in the active conduct of a trade or business. Off-the-shelf computer software placed in service in tax years beginning after 2002 and before 2015 is treated as qualifying property.

By example, a 7 year asset with a cost of $2,000,000 is the only asset purchased in 2014. You may take a 179 expense deduction of $500,000 (the maximum amount). With the remaining $1.5 million you can take bonus depreciation of $750,000. Then with the remaining $750,000 in asset cost basis, another $107,143 (1/7 or 14.286%) in regular MACRS depreciation is added. This totals $1,357,143 or 67.86% of the asset cost on a 7 year asset.

The incentives for investing in business property in 2014 were significant. It’s a shame congress did not act sooner as the ability to plan on equipment investment was lost due to the late extension of both the bonus depreciation and 179 expense deduction provisions. Once again, we enter 2015 with no bonus depreciation and greatly reduced 179 expense deduction and investment limitation. As always, planning for your capital and equipment acquisitions and retirements is essential. If you have any questions call us, Margolis Partners, 610.667.4310. We’d be glad to help walk you through it.

*About Margolis Partners

Margolis Partners has long been recognized as the financial expert for family-owned businesses with a specialty in the printing, packaging and allied graphic communications industries, assisting thousands of companies with strategic and financial management, valuation, mergers/acquisitions, accounting, audit and tax services. The firm is noted for its expertise in enabling companies to optimize profits. Proudly, it is the purveyor of the industry’s Value-Added Principles of Management, and compiles the annual Printing Industries of America Ratios, the printing industry’s premier financial benchmarking tool.*.