An additional depreciation that was implemented to encourage asset purchases is the provision for bonus depreciation. You can use the bonus depreciation rules to write off the entire cost of certain business property you first placed in use in 2011. This rule, known as first-year bonus depreciation, allows you to write off 100 percent of your costs in 2011. For property placed in service in 2012, the bonus depreciation allowance is decreased to 50 percent of the property’s cost. Any remaining cost not fully deducted under the bonus depreciation rules is subject to the regular depreciation rules. Thus, it must be deducted over a period of several years.
The allowance generally applies to tangible personal property, including property with a recovery period of 20 years or fewer, office equipment, computer software and certain leasehold improvements. The property must be new, it can’t be used.
By providing immediate tax relief, improving cash flow and providing additional capital for reinvestment in the business, this rule delivers a number of benefits to small business owners. It is important to properly coordinate between using the Section 179 rules versus the bonus depreciation rules as there can be tax consequences to each choice.
