IRS Announces 'Bonus' Depreciation Guidelines For Business Assets

by Mike Godfrey, Tax-News.com, Washington

08 September 2003

The United States Treasury Department and the Internal Revenue Service announced last week temporary guidelines which provide a detailed explanation of additional 'bonus' depreciation allowances being offered on certain types of property employed 'in a trade or business or held for the production of income' and including computer software.

Section 167 of the Tax Code already allows as a depreciation deduction a reasonable allowance for the exhaustion, wear, and tear of property used in this way. Now, the Treasury Department says:

"As a result of recent amendments to the Internal Revenue Code, taxpayers may deduct an additional 30- or 50-percent first-year depreciation allowance for certain depreciable property. This depreciation allowance is in addition to the amount of depreciation otherwise allowable in the first year.

"Section 168(k)(1) allows a 30-percent additional first year depreciation deduction for qualified property acquired after September 10, 2001, and, in most cases, placed in service before January 1, 2005. Section 168(k)(4) allows a 50-percent additional first year depreciation deduction for 50-percent bonus depreciation property acquired after May 5, 2003, and, in most cases, placed in service before January 1, 2005. Section 1400L(b) allows a 30-percent additional first year depreciation deduction for qualified New York Liberty Zone property (Liberty Zone property) acquired after September 10, 2001, and placed in service before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property).

"With respect to the election out of the additional first year depreciation deduction, a taxpayer may elect out of the 30-percent additional first year depreciation deduction for any class of qualified property. For any class of 50-percent bonus depreciation property, a taxpayer may elect either to deduct the 30-percent, instead of the 50-percent, additional first year depreciation deduction or to deduct no additional first year depreciation deduction. The regulations provide the rules for making these elections and also define what is a class of property for purposes of the elections."

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