Bonus Depreciation Rules for 2013

Jun 26, 2013

Note that the rules detailed below DO NOT reflect changes enacted by the Tax Increase Prevention Act of 2014, signed into law on December 19, 2014.  To access our updated article, please click here.  

The outline below provides a summary of the Bonus Depreciation deductions that business owners should be aware of and plan for as they invest in fixed assets in 2013 and later years.  This summary discusses the general rules for Bonus Depreciation.  Additional rules that apply specifically to claiming Bonus Depreciation for autos and trucks are not outlined here.  Please consult with the tax professionals at Gilliam Coble & Moser, L.L.P. to determine how these rules may benefit your unique situation. 

Businesses may receive a bonus depreciation deduction equal to 50% of the purchase price of Qualified Property (defined below).  Current rules for the 50% bonus depreciation deduction are as follows:

Property must be purchased new

  • The original use of property must begin with the taxpayer. 
  • Accordingly, used property does not qualify for bonus depreciation.

Property must be purchased during specific time periods

  • Qualified Property purchased and placed in service after December 31, 2007 and before January 1, 2014 (i.e., all of 2008-2013 calendar years):
    • A depreciation deduction equal to 50% of the purchase price of the Qualified Property may be taken.
    • No written binding contract for the purchase can be in effect before January 1, 2008, but the purchase can qualify if it is under a written binding contract entered into after December 31, 2007 and before January 1, 2014.
    • For a taxpayer manufacturing, constructing or producing property for its own use, the timely acquisition requirement is treated as met if the taxpayer began the manufacture, construction or production after December 31, 2007 and before January 1, 2014.
    • Long-production-period property may qualify for the Bonus Depreciation deduction if the property is acquired (or produced/constructed) before December 31, 2013 and placed in service before January 1, 2015.  Only costs to manufacture, construct or produce the property incurred before January 1, 2014 may qualify.
    • Normal MACRS depreciation may be taken on any remaining basis.

Property must be Qualified Property

  • Qualified Property includes:
    • Property with a useful life of 20 years or less (e.g., machinery and equipment, furniture and fixtures, land improvements, computer equipment, off-the-shelf computer software, etc.).
    • Qualified leasehold improvement property, defined as:
      • An improvement made to an interior portion of a nonresidential building and not attributable to:
        • Building enlargements
        • Structural enhancements
        • Elevators or escalators
        • Structural components benefiting common areas
        • Internal structural framework of the building
      • An improvement made pursuant to a lease (by either the lessee, sublessee or lessor), in which the lessor and lessee are not related, and
      • An improvement placed in service more than three years after the date the building was first placed in service.