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Home4About
Us4News4September 2003
News
- September 2003
2003 Bonus
First-year Depreciation Deduction
The Jobs and Growth Tax
Relief Reconciliation Act of 2003 (the Jobs and Growth Act), which was
recently signed into law, contains key provisions meant to encourage
businesses and professional practices to attain more machinery and
equipment and thereby stimulate the economy.
Bonus first-year
depreciation allowance.
The Jobs and Growth Act gives enterprises a 50% bonus first-year
depreciation deduction for most capital assets (other than buildings)
acquired new after May 5, 2003 and before 2005 (there can't be a written
binding contract for the asset's acquisition in effect before May 6,
2003).
Qualifying new capital
assets generally must be placed in service before 2005 (before 2006 for
certain longer-lived property). Under prior law, extra first-year
depreciation took the form of a 30% bonus write-off for most new capital
assets (other than buildings) acquired after Sept. 10, 2001, and before
Sept. 11, 2004, and placed in service before 2005 (before 2006, for
certain property).
Results: The bonus 50%
first-year write-off means that an enterprise can recover more of the
cost of a business asset in the year it is placed in service.
· Example
(1). In June of 2003, ABX, a calendar-year business, buys and places in
service $100,000 of new property that has a five-year depreciation
recovery period. ABX doesn't expense any of the cost of the property (or
is ineligible for expensing). ABX may claim a total first year
depreciation deduction of $60,000 for the property ($50,000 bonus
first-year depreciation allowance plus $10,000 regular first-year
depreciation allowance). If 30% bonus first-year depreciation (instead
of 50%) applies to the assets, ABX may claim a total first-year
depreciation deduction of only $44,000 for the property ($30,000 bonus
first-year depreciation allowance plus $14,000 regular first-year
depreciation allowance).
· Example
(2). In Sept. of 2003, Widget, a calendar-year business, buys and places
in service $100,000 of new property depreciable over five years. Widget
elects to expense $50,000 of the cost of the property, reserving the
balance of the expensing allowance for other property. For 2003, Widget
may write off $80,000 of the property's cost ($50,000 expensing
allowance, plus $25,000 special depreciation allowance (50% of cost
that's not expensed) plus $5,000 regular depreciation allowance).
What qualifies.
Bonus
first-year depreciation applies to:
· Most
types of new, nonrealty assets, such as business machines, computers,
most types of computer software, many types of production equipment,
trucks, trailers, and business furniture;
· Qualified
leasehold improvements which, in general, are interior improvements made
under a lease to commercial property (such as an office building or
warehouse), and placed in service more than three years after the
building was first placed in service. Certain structural improvements
don't qualify, and neither do expansions.
SOURCE: Taken from "2003
Tax Law Savings for Businesses" By
Ken Weaver, published June 10, 2003 at www.Taxnewsletters.com.
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