Bonus Depreciation And Other Major Credits Included in Fiscal Cliff Agreement

January 1, 2013 04:34 PM
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via a special arrangement with Informa Economics, Inc.

Bonus depreciation and Section 179 details

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

One notable business extender in the fiscal cliff agreement, at a cost of nearly $18 billion over 10 years, involves 50% bonus depreciation rules for property placed in service before the end of 2013 (and through 2014 for certain transportation property, as well as certain longer-lived items). (These rules were set to expire at the beginning of 2013, and in 2014 for longer-lived property.) This provision allows businesses to deduct from their taxes 50% of the value of that property in addition to amounts that they could otherwise claim under depreciation rules.

Bonus depreciation is allowed against both the regular tax system and the AMT. In addition, businesses could elect to accelerate the AMT credit in lieu of bonus depreciation.

The next most expensive tax extender extends the ability of financial services companies and manufacturers with financing arms to defer taxes on income earned overseas from active financing operations, at a cost of $11.2 billion. The measure also extends the research and experimentation credit for businesses, at a cost of $11.1 billion over 10 years.

Another significant extension relates to the ability of small businesses to more quickly recover the cost of certain capital expenses, which has been modified several times over the past few years. Section 179 of the tax code gives small-business taxpayers the option to deduct from their taxes, (i.e., "to expense") the cost of purchases, up to specified limits, in the year items are acquired, rather than recovering the costs of the items over time through depreciation. Current law also establishes a "phase-out threshold," and if businesses place more than that specified amount of property into service in a year, then the amount that they are permitted to expense is reduced dollar for dollar, but not below zero.

The measure increases for 2012 and 2013 the expensing limit to $500,000, with the phase-out beginning when investments exceed $2 million. JCT estimates that this single provision would reduce revenue by $2.4 billion over 10 years.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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