2011 Sunsetting Business Tax Provisions – Part 1: Tax Deductions

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imageby Melissa Merrick and Marie Jett, CPA | Team Members of the Tax Services Group

Many tax breaks currently available to businesses will become unavailable after December 31, 2011. With other political policies taking higher priority, the extension of these tax provisions may not occur. The following article provides detail on tax deductions that are scheduled to expire after 2011.

A tax deduction reduces your tax liability through decreasing your taxable income and potentially reducing your tax bracket. Specific tax deductions that are scheduled to end in 2011 include 100% bonus depreciation, Section 179 expensing allowances, and 15-year specialized realty assets expensing.

  • Bonus depreciation is allowed for new property (i.e. original use of the property must begin with the taxpayer) that has a useful life of 20 years or less. 100% bonus depreciation allows for a 100% expense of such capitalized property in the year of purchase. In 2012, bonus depreciation is scheduled to remain but instead at a 50% rate (i.e. a taxpayer will be able to expense 50% of capitalized property in the year of purchase. The President’s Jobs Bill has a provision to extend the 100% bonus depreciation; however, this bill has not yet passed. Therefore, if you are able to speed up the purchase of depreciable property to 2011, you should most likely do so to take advantage of this 100% bonus depreciation.
  • Section 179 depreciation allowance is offered for depreciable property in its first year of use by a company (i.e.new or used property). For 2011, you can expense 100% of qualified capitalized property up to $500,000. However, the maximum annual expensing amount is reduced dollar-for-dollar for property placed in service in excess of $2,000,000. For tax years beginning in 2012, the maximum amount that can be expensed is $125,000 and the investment ceiling is lowered to $500,000. Therefore, once again, if you are able to speed up the purchase of depreciable property to 2011, you should most likely do so if you are concerned that the future reduced 179 limits will limit the amount of Section 179 depreciation you would be able to take.
  • Qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property is eligible for 15-year MACRS depreciation in 2011. Items commonly considered qualified for this 15-year treatment include electrical or plumbing systems, permanently installed lighting fixtures, furnaces, air conditioners, ceilings, and doors. Items will typically be eligible unless they enlarge the building, are attributable to internal structural framework, or are placed in service three years sooner after the building was first placed in service. This 15-year expensing election is scheduled to disappear after 2011, and these assets are scheduled to return to the 39-year recovery period. Therefore, if you are planning on purchasing/constructing any realty assets that fall into this category in the near future, it is in your best interest to speed up these purchases to 2011 to take advantage of the increased depreciation.

Please note that the following items are by no means all the tax deductions that will be expiring in 2011, but a list of items that we believe are most relevant to you. If you have any questions regarding tax deductions or other miscellaneous items that are to expire in 2011 and how you can take advantage of them in the current year, please contact the Greenwalt CPAs Tax Services Group at 317.241.2999.