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Take your last shot at bonus-depreciation deductions

by on
in Small Business Tax,Small Business Tax Deduction Strategies

If you thought bonus-depreciation deductions for businesses have been completely wiped off the books, think again.

Strategy: Take advantage of the exceptions in the law for property placed in service in certain specified areas. If your business qualifies, you can nail down deductions above and beyond the usual limits required by the Modified Accelerated Cost-Recovery System (MACRS).

Here’s the whole story: In the usual situation, you recover the cost of business assets over an extended time through MACRS deductions. Example: Computers are depreciated over a five-year period, while it takes seven years to fully recoup the cost of most equipment.

After the 9/11 terrorist attacks, Congress authorized bonus-depreciation deductions as a short-term economic incentive. From Sept. 11, 2001, through May 5, 2003, the available bonus-depreciation deduction equaled 30 percent of the property’s basis. The deduction increased to 50 percent from May 6, 2003, through Dec. 31, 2004.

Bonus depreciation expired after 2004 for most taxpayers. But the 30 percent bonus deduction is still available for property placed in service in the New York Liberty Zone before Jan. 1, 2007.

For nonresidential real estate and residential rental property located in the Liberty Zone, you can claim bonus depreciation for property placed in service before 2010.

Similarly, for areas affected by hurricanes Katrina, Wilma and Rita, the IRS has extended the original deadline for bonus-depreciation deductions — Dec. 31, 2005 — so you can still deduct 50 percent of the basis for property placed in service before Jan. 1, 2007.

The Jan. 1, 2007 deadline applies on a case-by-case basis.

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