What is Bonus Depreciation for 2014

Bonus depreciation is an additional first-year depreciation allowance equal to a set percentage of the adjusted basis of eligible Qualified Property placed in service during the year. It is allowed for eligible property placed into service after 2007 and before 2014 meaning it expired at the end of 2013.

BUT good news. Congress extended Bonus Depreciation through 2014.

The percentage for bonus depreciation since 2012 is 50%.

This special Bonus Depreciation can be ADDED to a Section 179 Election!

Bonus Depreciation (also called Section 168(k) allowance) can be claimed in addition to any first-year expensing. In figuring the adjusted basis for purposes of bonus depreciation, any first-year expensing deduction is taken into account first.

Bonus Depreciation Example: In August 2014 Carly Simpson placed in service equipment costing $650,000. She can elect to expense $575,000 of the cost. This is determined as follows; she can use the maximum Section 179 deduction in 2014 of $500,000. Her bonus depreciation is $75,000, or [($650,000 – $500,000) X 50%]. She can depreciate the remaining adjusted basis of the equipment ($75,000) over the property’s recover period.

You can determine your Bonus Depreciation using this calculator.

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

  • Property that is depreciable under MACRS and has a recovery period of 20 years or less.
  • Computer software which is depreciable using the straight-line method over 36 months.
  • Water utility property.
  • Acquired the property after December 31, 2007, and before 2014.

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 this special type of 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.

This special 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.

Here is a video for bonus depreciation for small business owners.