Bonus Depreciation and Section 179 Expensing

Bonus Depreciation

Section 179 Expensing

Bonus Depreciation and Section 179 of the Internal Revenue Code Expensing can greatly assist IPC members by permitting companies to write off their investments in capital equipment at an accelerated rate. IPC and its members have long advocated for enhanced bonus depreciation and associated benefits to assist electronics companies. In order for companies in the electronics industry to compete globally, they must continually invest in equipment. Bonus depreciation and Section 179 expensing are especially helpful in tough economic times because businesses can continue to purchase equipment and write off the investment at a faster rate. Unlike the bonus depreciation, Section 179 expensing can be applied to both new and used equipment and combined with bonus depreciation for even bigger tax savings. Congress's enactment of enhanced bonus depreciation and Section 179 expensing can help companies to purchase much needed equipment that will allow them to remain globally competitive.

Bonus Depreciation

President Obama signed into the law the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010,” H.R. 4853, that will provide 100 percent bonus depreciation for investments placed in service after September 8, 2010 and through December 31, 2011. IPC and its members worked all year to accomplish the enactment of this important tax provision to assist electronics manufacturers compete globally.

The enhanced bonus depreciation benefit enacted into law is greater than the current benefit. Before enactment of the new bonus depreciation law, businesses were allowed to recover 50 percent of the cost of capital expenditures over time according to a depreciation schedule. The bill extends and temporarily increases the bonus depreciation to 100 percent for investments placed in service after September 8, 2010 and through December 31, 2011. For investments placed in service after December 31, 2011 and through December 31, 2012, the bill provides for the current 50 percent bonus depreciation.

Placed-in-service date Bonus Depreciation Level
January 1, 2008 – September 8, 2010 50 percent
September 9, 2010 – December 31, 2011 100 percent
January 1, 2012 – December 31, 2012 50 percent
January 1, 2013 and beyond 0 percent

Laws changing the amount of Bonus Depreciation allowed have been passed in a short four month period during the end of 2010. In September 2010, President Obama signed into law the Small Business Jobs Act (H.R. 5297) that provides an additional year of bonus depreciation, through 2010, for businesses of all sizes. Bonus depreciation, enacted in the Economic Stimulus Act of 2008 and subsequently renewed in the American Recovery and Reinvestment Act of 2009, had expired at the end of 2009. In December 2010, the President signed into law the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010,” that extends and temporarily increases this bonus depreciation provision for investments in new business equipment.

Under the new Bonus Depreciation schedule, businesses may immediately write-off 100 percent of the cost of depreciable property (e.g., manufacturing equipment, computers, and computer software) acquired in the same calendar year, providing the equipment is used in the United States.

However, there are some limitations.

To be eligible for the 100 percent depreciation bonus, the equipment must meet the following requirements:

  • The equipment must be new. In other words, the original use of the equipment must commence with the taxpayer claiming the depreciation bonus after Sep. 8, 2010 and before Jan. 1, 2012.
  • The equipment must be depreciable under Modified Accelerated Cost Recovery System (MACRS) and have a depreciation recovery period of 20 years or less.
  • The equipment must be purchased between Sep. 8, 2010 and before Jan. 1, 2012.
  • The equipment must be placed in service before Jan. 1, 2012.

View an explanation of Bonus Depreciation Tax Incentives as a PDF

Business owners should seek professional advice from tax consultants and accountants to take advantage of bonus depreciation.

Section 179 of Internal Revenue Code – expensing of both new and used equipment

The “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010,” H.R. 4853, provides an additional year of increased Section 179 of the Internal Revenue Code expensing for 2012. Before enactment of this bill, Section 179 expensing was set to return to lower levels in 2012.

For 2010 and 2011, companies can expense up to $500,000 as long as total purchases in either year do not exceed $2,000,000. For each dollar over, the eligible expensing amount correspondingly drops by one dollar. Thus, companies that spend more than $2,500,000 in 2010 or in 2011 on tangible personal property cannot take advantage of Sec. 179. For 2012, companies can expense up to $125,000 as long as total purchases in either year do not exceed $500,000.

Year Purchased

Section 179 Expensing Limitation

Cap of Qualified Expenses that are Eligible to be Reduced*

2010

$500,000

$2,000,000

2011

$500,000

$2,000,000

2012

$125,000

$500,000

*For each dollar over, the eligible expensing amount correspondingly drops by one dollar.


  • Equipment does not need to be new to qualify for Section 179 expensing.
  • The Section 179 increases apply to any tax year beginning in 2010, 2011 and 2012.
  • Section 179 and the depreciation bonus can be combined.

Business owners should seek professional advice from tax consultants and accountants to take advantage of new investment incentives.

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