Equipment Depreciation Tax Law Extended

In mid-December, President Obama signed into law an extension and expansion on The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The law, among other things, provides 100 percent depreciation bonus for equipment placed in service after December 31, 2011. The tax law then provides for 50 percent depreciation bonus for equipment placed in service in 2012.

The new tax law means big bonuses for companies who invest in new machinery in 2011. That means a quick write-off for companies. A company buying new machinery in 2011 will be able to write off the entire purchase price in the same year the machinery was bought rather than depreciating the cost over several years, which is typically the case.

Currently, the allowance and phase out threshold for the direct expensing provision are $500,000 and $2 million, respectively, for the taxable years beginning in 2010 and 2011. The new law permits taxpayers to use a direct expensing allowance in 2012 of $125,000. The $125,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $500,000. The $125,000 and $500,000 amounts are indexed for inflation.

The bill passed with wide bipartisan margins, and the general consensus is that the deal met represents the best either party could hope to achieve without increasing taxes to all taxpayers just in time for Christmas.

The hope is that the provision could potentially aid in job creation and generate more than $50 billion in additional investment this year, according to the White House.

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