OBAMA ADMINISTRATION PROPOSES ONE YEAR EXTENSION OF 100% DEPRECIATION TAX DEDUCTION

The following excerpt is from the Department of Treasury website: EXTEND 100 PERCENT FIRST-YEAR DEPRECIATION DEDUCTION FOR ONE ADDITIONAL YEAR Current Law An additional first-year depreciation deduction is temporarily allowed for qualified property placed in service before January 1, 2013. The deduction equals 50 percent of the cost of qualified property placed in service during the taxable year, and is allowed as a depreciation deduction for both regular tax and alternative minimum tax purposes. The property’s depreciable basis is adjusted to reflect this additional deduction. Taxpayers may elect out of this additional depreciation deduction for any class of property for any taxable year. The additional first-year deduction equaled 100 percent of the cost of qualified property acquired after September 8, 2010 and before January 1, 2012, and placed in service prior to January 1, 2012. Qualified property includes tangible property with a recovery period of 20 years or less, water utility property, certain computer software, and qualified leasehold improvement property. It excludes property that is required to be depreciated under the alternative depreciation system. The original use of the property must commence with the taxpayer, and the taxpayer must purchase (or begin the manufacture or construction of) the property after December 31, 2007 and before January 1, 2013 (but only if no written binding contract for the acquisition was in effect before January 1, 2008). The property must be placed in service before January 1, 2013. An extension by one year of the placed-in-service date is allowed for certain property having longer production periods, but only the portion of the basis that is properly attributable to costs incurred prior to January 1, 2013 may be taken into account. Certain aircraft not used in providing transportation services are also granted a one-year extension of the placed-in-service deadline. Special rules apply to syndications, sale-leasebacks, and transfers to related parties of qualified property. The dollar limitation on the first-year depreciation allowance of qualifying passenger automobiles is increased by $8,000. Corporations otherwise eligible for additional first-year depreciation may elect to claim additional alternative minimum tax credits in lieu of claiming the additional depreciation for “eligible qualified property.” Such property includes otherwise qualified property that was acquired after March 31, 2008, and only adjusted basis attributable to its manufacture, construction, or production after that date and before January 1, 2010, or after December 31,2010, and before January 1, 2013 is taken into account. Depreciation for such property must be computed using the straight-line method if the corporation elects this provision. Reasons for Change By accelerating in time the recovery of investment costs, additional first-year deductions for new investment lower the after-tax costs of capital purchases. This encourages new investment and promotes economic recovery. Proposal The proposal would extend the 100-percent additional first-year depreciation deduction for one additional year. Thus, qualified property acquired and placed in service through 2012 (2013 for property eligible for a one-year extension of the placed-in-service date) could be fully expensed. Taxpayers could elect not to expense any class of their qualified property and instead depreciate that property without any additional first-year depreciation deduction. The proposal would be effective for qualified property placed in service after December 31, 2011