You can take a special depreciation allowance on eligible property
placed in service after December 31, 2007, and before 2013.

The percentage for bonus depreciation in 2011 is 100%; it is 50%
for 2012.

Bonus Depreciation (also called Section 168(k) allowance) can be
claimed in addition to any first-year expensing.  However, for eligible
property placed in service in 2011, the 100% bonus rate eliminates the
need for first-year expensing. 





You can take a special depreciation allowance on eligible
property placed in service after December 31, 2007.  This "bonus
depreciation" amounts to 100% 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 2011 Carly Simpson placed in service
equipment costing $300,000.  She elects to expense the full
amount of $300,00 based on the Bonus Depreciation allowance.
Her total deduction in 2011 is $300,000.

In 2012, the rate is 50% so assuming she purchases and places
into service the equipment in 2012, the can elect to expense $250,000
of the cost (the maximum Section 179 deduction).  Her bonus
depreciation is $25,000, or [($300,000 - $250,000) x 50%].  She can
depreciate the remaining adjusted basis of the equipment ($25,000)
over the property's recovery period.  If the equipment is five-year
property, the depreciation allowance for 2012 is $5,000 ($25,000 x 20%).
The total deduction for the equipment in 2012 is $280,000 ($250,000 + $25,000 + $5,000).

Bonus Depreciation Requirements
To qualify, you must fit one of the following:

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 December 31, 2007, and before 2013.

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 100% bonus depreciation, you can elect not to
use it.  However, you cannot elect out of 100% bonus depreciation
in order to use 50% bonus depreciation. 

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.

Click here to leave bonus depreciation and return to
depreciation main