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Planning for Capital Purchases as Popular Provisions Expire

Tim Ernesti’s experience in state and federal tax, in the areas of real estate and manufacturing/distribution tax, is broad and deep. Learn more about MarksNelson's accounting experts.

With 2013 drawing to a close, a number of popular tax provisions will expire leaving businesses of all sizes with important decisions to make regarding the most advantageous time to make capital purchases.  Unless Congress acts soon, the following provisions will expire:

Bonus Depreciation Deduction: The 50% bonus depreciation deduction for personal property and certain qualifying real property is set to expire December 31, 2013.  To qualify, the property acquired must be new property.  The depreciable basis of the property is reduced by the bonus depreciation deduction.  Regular depreciation is then calculated on the remaining basis for the current year and all future years.  This provision creates significant tax deductions in the year of acquisition for qualifying property.

Other Provisions: The 15 year recovery period for certain qualifying property will also expire.  Qualified Leasehold Improvement Property, Qualified Restaurant Property, and Qualified Retail Property placed in service before January 1, 2014 will be eligible for the 15 year recovery period.  After that time, these improvements will be depreciated over the standard 39-year recovery period.  In addition to the loss of the 15-year recovery period, Qualified Leasehold Improvements will no longer be eligible for the 50% bonus depreciation.  While Qualified Leasehold Improvements are currently eligible for 50% bonus, it is important to note that Qualified Restaurant and Qualified Retail property are not eligible for bonus.

Code Section 179:  The code section 179 deduction will be significantly reduced after December 31,

2013.  For 2013, any taxpayer other than an estate, trust, and certain non-corporate lessors can deduct as an expense in the current year, rather than capitalize and depreciate over the life of the asset, up to $500,000 of new or used tangible personal property or up to $250,000 for certain types of qualifying real prop

erty.  This amount is limited to the taxable income of the taxpayer deducting the expense and is reduced dollar for dollar by the amount of Section 179 property placed in service this year in excess $2,000,000.  For tax years beginning after December 31, 2013, this expensing limit is scheduled to drop drastically from $

500,000 to $25,000 and the dollar for dollar reduction will go from $2,000,000 to $200,000.

We will update you if any of these provisions is extended before year end.  In the meantime, please consult Tim Ernesti or your MarksNelson professional if you have any questions or are planning any major capital purchases for either the end of this year or early next year.

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Tim ErnestiView all posts by Tim Ernesti