You can take a special depreciation allowance on eligible
property placed in service after September 10, 2001, and before
January 1, 2005.



You can take a special depreciation allowance on eligible
property placed in service after May 5, 2003.  This "bonus
depreciation" amounts to 50% of the depreciable basis  of
qualified property.  This allowance is in addition   to any Section
179 deduction and before you figure regular depreciation under
MACRS for the year you place the property in service.  The
previous bonus deduction was 30%.

Example:  In August 2004, Carlita Simpson placed in service
equipment costing $150,000.  She elects to expense $102,000 of
the cost (the maximum Section 179 deduction).  Her bonus
depreciation is $24,000, or [($150,000 - $102,000) x 50%].  She can
depreciate the remaining adjusted basis of the equipment ($24,000)
over the property's recovery period.  If the equipment is five-year
property, the depreciation allowance for 2004 is $4,800 ($24,000 x 20%).
The total deduction for the equipment in 2004 is $130,800 ($102,000 + $24,000 + $4,800).

Bonus Depreciation Requirements

1. Property that is depreciable under MACRS and has a
   recovery period of 20 years or less.
2. Computer software which is depreciable using the
   straight-line method over 36 months.
3. Water utility property.
4. Acquired the property after May 5, 2003, and before
   January 1, 2005.

Not Using the Bonus Depreciation
Unlike regular depreciation, you are not required to use bonus
depreciation and have the option of electing out of its use.  If you
are eligible for the 50% bonus depreciation, you can elect to have
the 30% rate apply, or opt out entirely.  If you fail to make an
election not to claim bonus depreciation, then you are deemed to
have claimed it at the rate applicable to the date the property was
placed in service (even though you did not) and must reduce the
basis of the property by the amount of bonus depreciation that
could have been claimed. 

Note that bonus depreciation enables you to deduct more of the
cost of property upfront rather than over the course of the
applicable recovery period.  The total depreciation deductions are
not affected for the property, just the timing.  You may elect to not
use bonus depreciation if you expect to be in a higher tax bracket
in coming years; this will allow you to obtain a greater tax benefit
from depreciation deductions later on.

The bonus depreciation election is made on a per-asset-class
basis.  For example, you can elect to use bonus depreciation for
all five-year property while not claiming it for all seven-year
property.

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