The changes wrought by the American Taxpayer Relief Act of 2012 (ATRA) apply mainly to individual tax planning. But business owners have some things of which to take note as well. The ATRA extends through 2013 (and in some cases also retroactively to Jan. 1, 2012) a variety of tax breaks to which your company has perhaps grown accustomed. These include valuable depreciation-related items such as 50% bonus depreciation; higher levels of Section 179 expensing; and accelerated depreciation for qualified leasehold, retail and restaurant improvements.
50% Bonus Depreciation Extended. The ATRA extends 50% first-year bonus depreciation for an additional year to cover qualifying new (not used) assets that are placed in service in calendar-year 2013. However, the placed-in-service deadline is extended to 12/31/14 for certain assets that have longer production periods including transportation equipment and aircraft. Under the extended deadline privilege, only the portion of a qualifying asset’s basis that is allocable to costs incurred before 1/1/14 is eligible for 50% bonus depreciation.
For a new passenger auto or light truck that is subject to the luxury auto depreciation limitations, the 50% bonus depreciation provision increases the maximum first-year depreciation deduction by $8,000.
Generous Section 179 Deduction Rules Extended and Qualifying Real Estate Expenditures Are Again Eligible. For qualifying assets placed in service in tax years beginning in 2012 and 2013, the ATRA restores the maximum Section 179 deduction to $500,000 (same as for tax years beginning in 2011). Without this change, the maximum deduction would have been only $139,000 for 2012 and only $25,000 for 2013. The Act also restores the Section 179 deduction phase-out threshold to $2 million for tax years beginning in 2012 and 2013 (same as for tax years beginning in 2011). Without this change, the phase-out threshold would have been only $560,000 for 2012 and only $200,000 for 2013.
Somewhat surprisingly, the temporary rule that allowed up to $250,000 of Section 179 deductions for qualifying real property placed in service in tax years beginning in 2010 and 2011 was retroactively restored for tax years beginning in 2012 and extended through tax years beginning in 2013.
Key Point: For tax years beginning in 2014, the maximum Section 179 deduction is scheduled to be only $25,000, the phase-out threshold is scheduled to fall to $200,000, and the Section 179 deduction privilege for real estate expenditures will be off the table.
15-year Depreciation for Leasehold Improvements, Restaurant Property, and Retail Space Improvements Extended. The ATRA retroactively restores the 15-year straight-line depreciation privilege for qualified leasehold improvements, qualified restaurant property, and qualified retail space improvements for property placed in service in 2012 and extends the deal to cover property placed in service in 2013.