2009 American Recovery and Reinvestment Act Bonus Depreciation and 179 Small Business Expensing
The American Recovery and Reinvestment Act (ARRA) was signed into law on February 17, 2009. This act includes significant incentives to encourage equipment purchasing this year. The bonus depreciation created in 2008 was extended to the end of 2009. Companies that buy equipment in 2009 will be able to depreciate an additional 50 percent of the cost of assets placed in service through 2009. This is for new equipment ordered and made operational this year.
For both the regular tax and the alternative minimum tax, the first-year depreciation deduction otherwise allowed on certain qualified tangible personal property acquired and placed in service during 2009 is increased by 50 percent of the cost of such property.
The ARRA also extended for one year the significantly increased Section 179 small business expensing levels. Without the economic stimulus law, the Section 179 small business expensing limit for this year would have been around $130,000 with a phase-out threshold of roughly $500,000. However, under the ARRA, for 2009 the expensing limit increases to $250,000 and the phase-out threshold to increases $800,000. Thus, in 2009, a small business can expense up to $250,000 as long as its qualified equipment purchases do not exceed $800,000. For each dollar that total equipment purchases exceed $800,000, the amount that can be expensed decreases by one dollar, so that a company that makes $1,050,000 in total purchases will not be able to expense anything (but could still claim the depreciation bonus).
For purposes of the Section 179, qualifying property is generally depreciable tangible personal property that is purchased for use in the active conduct of a trade or business. Unlike the depreciation bonus, both new and used equipment is eligible for Sec. 179 expensing.
Depreciation Bonus At A Glance
Sec. 1201 of the 2009 American Recovery and Reinvestment Act (ARRA) allows additional first-year depreciation of 50 percent of purchase cost by extending for one year the depreciation bonus created by the 2008 Economic Stimulus Act.
Depreciation bonus helps businesses that buy equipment this year cut their 2009 tax bill.
Applies, among other things, to purchases of tangible personal property (including construction, mining, forestry, and agricultural equipment) with a MACRS recovery period of 20 years or less.
Equipment must be purchased and placed in service in 2009.
Equipment must be new.
You may not claim the depreciation bonus for 2009 if a binding purchase contract existed prior to Jan. 1, 2009 (but you may be eligible for the 2008 depreciation bonus ? check with your accountant).
Allowed for both regular and alternative minimum tax purposes.
Discretionary - Taxpayer need not claim the depreciation bonus.
Depreciation bonus will expire at end of 2009.
Sec. 179 Expensing At A Glance
Sec. 1202 of the ARRA extended for one year the increased Sec. 179 expensing limit of $250,000 and phase-out cap to $800,000.
Companies can expense up to $250,000 in purchases as long as they don't spend more than $800,000.
Expensing is phased-out for each dollar that purchases exceed $800,000.
Companies with total purchases of $1,050,000 cannot use Sec. 179.
New and used equipment is eligible for expensing.
Applies to tax years that start in 2009.
Can be combined with depreciation bonus.
Sec. 179 expensing levels will drop at end of 2009 (without ARRA, the 2009 expensing amount would be around $130,000 and the phase-out level would be around $500,000).
Note that the information on this site is provided to equipment purchasers as a public service. It should not be construed as tax advice or as a promise of potential tax savings or reduced tax liability.
