The bonus depreciation amount was 50 percent for 2012 and was slated to expire completely for 2013. The American Taxpayer Relief Act of 2012 (ATRA) extended the 50 percent bonus depreciation for qualified property placed in service from Jan. 1, 2013, through Dec. 31, 2013. The amount of bonus depreciation allowed on new equipment purchases will equal 50 percent of the cost basis of the qualifying property. This bonus depreciation can be taken only on new equipment (not used equipment and not software). Unlike the Internal Revenue Code Section 179 expense deduction, there is no cap on the amount of equipment that can be depreciated under this provision (i.e., the bonus depreciation can create a net operating loss).
The basis of the property must be adjusted to reflect the additional first-year depreciation deduction, and then regular modified accelerated cost recovery system (MACRS) depreciation will be applied to the remaining basis. Most business equipment is depreciated over five years for computers, automobiles and copiers, or seven years for furniture and most other machinery under the modified accelerated cost recovery system (MACRS) method.
Qualifying property must be:
- MACRS property with a recovery period of 20 years or less
- Water utility property
- Non-section 197 computer software
- Qualified leasehold improvement property
For example, if a hospital purchased a new machine at $700,000 on January 1, 2013. Under the new law, the hospital can write off $614,290 of the asset in the first year by combining the Section 179 deduction, 50 percent bonus depreciation, and regular MACRS depreciation.
Yangmei Wang, CPA, is an instructor, Accounting/MIS Department, Dillard College of Business Administration, Midwestern State University, Wichita Falls, Texas.
For more information, see Tiankai Wang, Yangmei Wang and Sue Biedermann's "Funding Alternatives in EHR Adoption: Beyond HITECH Incentives and Traditional Approaches", hfm, May, 2013.
Publication Date: Wednesday, May 01, 2013