50% Bonus Depreciation will Expire December 31, 2004

VERY IMPORTANT REMINDER: The 50% bonus depreciation provisions will expire for most assets that are purchased after December 31, 2004! Therefore, if you are considering to make a capital expenditure within the next 6-12 months, you should consider purchasing it (and placing it into service) prior to January 1, 2005. 

The regulations provide that depreciable property must meet four requirements to be qualified property. These requirements are:

1. The depreciable property must be of a specified type: (1) property that has a recovery period of 20 years or less; (2) computer software; (3) water utility property; or (4) qualified leasehold improvement property.

2. The original use of the depreciable property must commence with the taxpayer after 9/10/2001 for 30% or after 5/5/2003 for 50% bonus depreciation property. Original use generally means the first use to which the property is put, whether or not that use corresponds to the use of the property by the taxpayer. Thus, new property initially used by a taxpayer for personal use and then subsequently converted by the taxpayer for use in its trade or business satisfies the original use requirement. However, new property acquired by a taxpayer for personal use and then subsequently acquired by a different taxpayer for use in its trade or business does not satisfy the original use requirement. In addition, capital expenditures incurred by a taxpayer to recondition or rebuild property acquired or owned by the taxpayer satisfies the original use requirement.

3. The depreciable property must be acquired by the taxpayer within a specified time period (i.e., after 9/10/2001 but prior to 1/1/2005 for 30% property, or after 5/5/2003 but prior to 1/1/2005 for 50% property) but only if no written binding contract for the acquisition of the property was in effect before 9/10/2001 or 5/5/2003 respectively.

4. The depreciable property must be placed in service by a specified date. That is January 1, 2005.

With respect to the election out of the additional first year depreciation deduction, a taxpayer may elect out of the 30% additional first year depreciation deduction for any class of qualified property. For any class of 50% bonus depreciation property, a taxpayer may elect either to deduct the 30%, instead of the 50%, additional first year depreciation deduction or to deduct no additional first year depreciation deduction.

For additional information, please contact your engagement partner of the Tax Department of Feeley & Driscoll, P.C.

Find out how our Boston Consulting, Accounting and Tax experts can add value to your business. Email us or call us at 1 (888) 875-9770.

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