While the depreciation methods you use for business tax deductions have changed over time, the basic underlying idea remains the same: tangible assets generally have a limited lifespan, and the cost of the asset is deducted over that lifespan. To claim a deduction, you have to know the correct method and life for the asset.
Federal tax rules that apply to your 2013 tax return include expensing allowances and bonus depreciation. Both of these provisions give you the option of deducting most or all of the cost immediately, though you’re still required to classify assets by method and life. Here’s an overview of expensing and bonus depreciation for 2013:
You can claim Section 179 immediate expensing for assets such as new and used equipment, machinery, and off-the-shelf software. Certain restaurant property and leasehold and retail improvements also qualify.
To be eligible for Section 179, the assets must be purchased for use in your business, and be ready and available for such use.
The maximum Section 179 deduction for 2013 is $500,000. Your deduction will be less if you bought more than $2 million of assets during the year, and is also limited when you report a loss on your return.
For 2013, additional first-year depreciation, or bonus depreciation, lets you expense up to 50% of the cost of new tangible property with a depreciable life of 20 years or less. That description generally includes office equipment, furniture and fixtures, off-the-shelf software, and some leasehold improvements. Automobiles are also eligible, though the first-year additional depreciation may be limited to $8,000.
You can elect to claim bonus depreciation in the same year you use Section 179, and bonus depreciation is available even if your business reports a loss. Be aware that states often have different rules and bonus depreciation may not be deductible on your state return.
Contact us — we’re here to answer your questions about depreciation and to explain how the rules apply to your situation.