Year-end Asset Purchases Get Big Write-offs

The Small Business Jobs Act of 2010, (the “Act”) signed into law on September 27, 2010, contains generous expensing allowances for new assets. First, the bonus depreciation deduction has once again been extended for new assets placed in service on or before December 31, 2010. The bonus depreciation deduction of 50 percent applies to new tangible personal property, qualified leasehold improvements, and certain restaurant and retail improvements. Qualified leasehold improvements are limited to nonresidential property in buildings which have been in service for at least three years and that meet certain other requirements.

In addition, the Act expands the expensing allowance of Internal Revenue Code Section 179 by increasing the amount allowed as a first year write-off to $500,000 for assets placed in service in 2010 or 2011. For the first time, qualified leasehold improvements, along with qualified restaurant property and qualified retail improvements, qualify for the Section 179 write-off as well. As much as $250,000 of the $500,000 cap can consist of these real property assets. The phase-out limitation for the Section 179 deduction was also increased for 2010 and 2011. The available Section 179 deduction is reduced dollar for dollar (but not below zero) by the amount of eligible property placed in service during the year in excess of $2,000,000. The amount of Section 179 property costs which can be expensed in a given year generally cannot exceed taxable income derived from an active trade or business in the year. It should be noted that, under the Act, Section 179 deductions attributable to qualified real property which are disallowed under the trade or business income limitation can only be carried over to tax years in which the definition of eligible Section 179 property also includes qualified real property.

Finally, an $8,000 Section 179 deduction is available for new cars, light trucks and vans placed in service during 2010, increasing the first-year deduction limit (which includes depreciation) for luxury cars to $11,060 and the first-year deduction limit for light trucks and vans to $11,160.

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