Many people have heard of the term bonus depreciation, but many are also unfamiliar with the concept and its origins. What bonus depreciation does is allow a taxpayer to deduct an additional depreciation expense (on top of the normal depreciable amount) on an asset during the tax year acquired. The purpose behind this is to stimulate the economy by encouraging businesses to purchase new assets. Since there is a greater allowance of depreciable expenses for an asset, the business is left with a smaller remaining cost for the asset during the year of acquisition. This remaining cost will be expensed over the remaining life of the asset. Provided below is an outline of the history of bonus depreciation to give a better understanding of its origins and when it has been used.
Conceptual History
Asset Depreciation Range (ADR): Bonus Depreciation at 20%
Investment Tax Credit (ITC): Is similar to bonus depreciation since it allows a taxpayer to deduct a specific percentage of the asset’s cost as a current tax year expense.
Recent History/Current Legislation
As a result of the terrorist attack on the World Trade Center in New York City on 9/11/2001, the Job Creation and Worker Assistance Act of 2002 provided an additional and immediate 30% tax deduction on depreciable assets.
Since the passage of the original bonus depreciation and legislation in 2002, additional legislation has been passed in 2003, 2005, 2008, and 2009 to stimulate the economy. Recently a study by the Associated Equipment Distributors and the National Utility Contractors Association conducted a study to determine the effect of bonus depreciation on business’s new asset acquisitions. According to the study, it was found that there was a significant impact.
We would very much like to know what you think of this, and if bonus depreciation allowances have spurred your company to purchase any new assets in spite of the current economy. Please feel free to leave a comment below, or ask us any questions that you may have.
More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.
Our company recently purchased a company in another State with some three or four-year old fixed assets. It’s an asset acquisition deal and we started to depreciate these fixed assets in Oracle on basis of net book value on date of acquisition. Their date-in-service was accordingly entered as date of acquisition. My question is do these assets qualify to receive bonus depreciation?