Expensing Certain Depreciable Property Under IRS Section 179
Sec. 179 expensing limitation. ATRA extends retroactively from Jan. 1, 2012, through tax years beginning before Jan. 1, 2014, the limitation amounts under Sec. 179 for expensing of certain depreciable property. The act extends the rules for the maximum expensing amount and phaseout threshold under Sec. 179 that were in effect for tax years beginning in 2010 and 2011 to apply also for tax years beginning in 2012 and 2013. The amount a taxpayer may expense under Sec. 179 increases to $500,000, and the phaseout threshold amount increases to $2 million, for tax years beginning in 2012 and 2013. Within those thresholds, the act allows a taxpayer to expense up to $250,000 of the cost of qualified real property under Sec. 179(f) (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property). The treatment of off-the-shelf computer software as qualifying property under Sec. 179(d)(1)(A)(ii) is extended for one year for tax years beginning before Jan. 1, 2014. For tax years beginning after Dec. 31, 2013, the expense cap and phaseout threshold amounts are scheduled to return to $25,000 and $200,000, respectively.
Treatment of Qualified Leasehold Improvements and Other Properties Under IRS Section 168(e)(3)(E) Extended
Qualified leasehold improvements depreciation. ATRA extends retroactively from Jan. 1, 2012, through the end of 2013 the rule under Sec. 168(e)(3)(E) treating qualified leasehold improvement and certain other property as 15-year property. This is a statutory exception to the general rule that the costs of leasehold improvements to nonresidential real property are depreciated on a straight-line method over 39 years. The act extends the exception allowing 15-year straight-line cost recovery for certain qualified leasehold improvement property, qualified restaurant buildings and improvements, and qualified retail improvement property in the 15-year modified accelerated cost recovery system (MACRS) class placed into service prior to Jan. 1, 2012, to include qualifying improvements placed into service before Jan. 1, 2014. Such property is therefore also eligible for a bonus 50% first-year depreciation deduction, which was also extended by ATRA to property placed in service before Jan. 1, 2014 (Jan. 1, 2015, for certain long-production-period property and aircraft—see below).
IRS Section 168(k) Extended For 50% Bonus Depreciation
50% bonus depreciation. As mentioned above, ATRA extends through 2013 the provision under Sec. 168(k) for 50% bonus depreciation. Bonus depreciation allows for an additional first-year depreciation deduction of 50% of the basis of certain qualified property acquired after Dec. 31, 2007, and placed in service prior to Jan. 1, 2014 (before Jan. 1, 2015, for certain long-production-period property and certain aircraft acquired after Dec. 31, 2007, and before Jan. 1, 2014). This provision expires for property acquired after Dec. 31, 2013.