Small Business Expensing/Bonus Depreciation

IRS Code Section 179 allows a taxpayer to fully expense qualified fixed asset purchases in the year they were placed in service. Enhanced Code Sec. 179 expensing is scheduled to expire after 2012. Unless extended, the current allowable amount of $139,000 is scheduled to fall to $25,000 and the current $560,000 asset purchase limit is scheduled to fall to $125,000. The House approved legislation to extend the Code Sec. 179 small business expensing parameters originally put in place in 2003 ($100,000 and $400,000 respectively) through 2013. These amounts would be indexed for inflation for 2013, which the House GOP estimated at $127,000 and $510,000.

Bonus depreciation is the taxpayer’s second opportunity for accelerated deduction of fixed assets placed in service during the year, and is claimed after the application of Section 179. Bonus depreciation at its current 50 percent rate is scheduled to expire after 2012 (after 2013 for certain transportation property and longer-lived property).

Bonus depreciation and Section 179 deductions have reduced the after-tax costs of acquiring depreciable business property by accelerating the tax deductibility of some or all of the costs of acquiring the assets. As a result, these provisions have proven very popular with business taxpayers. In 2013, with bonus depreciation set to expire and Section 179 expensing falling drastically, businesses may have to rethink the way they invest in new fixed assets.