On September 27th, President Obama signed into law the Small Business Jobs Act, which can mean big savings on 2010 and 2011 equipment.
This new law offers valuable tax advantages when investing in capital equipment in 2010.
Small Business Jobs Act (SBJA) of 2010
To be eligible for the 2010 depreciation bonus, the equipment must meet the following requirements:
- The equipment must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a depreciation recovery period of 20 years or less. The SBJA also allows the use of depreciation bonus for certain types of water utility property, software and leasehold improvements.
- The equipment must be new. In other words, the original use of the equipment must commence with the taxpayer claiming the depreciation bonus after December 31, 2009 and before January 1, 2011.
- The equipment must be purchased between December 31, 2009 and before January 1, 2011.
- The equipment must be placed in service before January 1, 2011.
By lowering the taxable income, the depreciation bonus (for new equipment) and Sec. 179 (for new and used equipment) can dramatically cut 2010 and 2011 federal tax bills, giving the ability to free up cash in the near term.
How does the depreciation bonus work? Companies that buy new equipment in 2010 can depreciate 50% of the cost in the first year, plus the percentage of the remaining basis in the equipment that would ordinarily be depreciable under the MACRS. For a $100,000 piece of equpiment with a five-year MACRS life, the first year depreciation under the ARRA would be $60,000: $50,000 depreciation bonus, plus 20% of the remaining $50,000 in basis.
More information is available at www.depreciationbonus.org. Also, be sure to consult with a tax professional for complete details as some states may vary.