Federal Tax

First-Year Expensing and Additional Depreciation (Portfolio 532)

  • This Portfolio provides a basic reference tool for determining the first-year expensing and additional depreciation deductions available for selected properties.

Description

First-Year Expensing and Additional Depreciation is a basic reference tool for determining the first-year expensing and additional depreciation deductions available for selected properties. Generally, investment in depreciable properties is recovered over a period of time extending beyond the year of investment. However, under §179 taxpayers are permitted to deduct a limited amount of investment in the year of investment. Similar provisions exist in §168(k) for investment in qualified property or certain plants bearing fruit and nuts, in §168(l) for investment in qualified second generation biofuel plant property, and in §168(m) for investment in qualified reuse and recycling property.

Specifically, this Portfolio examines the computation of each of these deductions. It also explains the limitations that apply and describes the conditions that must be satisfied for property to fall within one or more of the provisions. It also covers effective dates, effects on basis, and special rules applicable to each deduction.

Bloomberg Tax & Accounting subscribers can access the full Portfolio: First-Year Expensing and Additional Depreciation (Portfolio 532). If you’re not a subscriber, learn more and see our premier tax research platform for yourself by requesting a demo.

Table of Contents

DETAILED ANALYSIS —

I. Overview and Comparison of Section 179 Expensing and Bonus Depreciation

II. Section 179 Expensing

A. Overview

1. In General

2. Mixed-Use Property; Change in Use

3. Collateral Effects

B. Dollar Limitations

1. Property Cost Limitation

a. In General

b. Spouses

(1) Joint Returns

(2) Separate Returns

c. Partnerships and S Corporations

d. Members of Controlled Groups

e. Sport Utility Vehicles

f. Enterprise Zone Businesses

g. Special Rules for Eligible Qualified Real Property Placed in Service in 2010–2015

2. Taxable Income Limitation

a. In General

b. Taxable Income

c. Active Conduct of Trade or Business

(1) Trade or Business

(2) Active Conduct

d. Partnerships and Partners

e. S Corporations and S Corporation Shareholders

f. Corporations that Are Not S Corporations

g. Spouses

(1) Joint Returns

(2) Separate Returns

h. Coordination with Other Taxable Income Limitations

i. Carryover of Disallowed Deductions

(1) In General

(2) Computation of Carryforward Deduction

(3) Recordkeeping

(4) Sale or Other Disposition

(5) Special Rules for Partnerships and S Corporations

(6) Special Rules for Partners and S Corporation Shareholders

(7) Carryovers with Respect to Eligible Qualified Real Property

3. Listed Property Limitations

C. Section 179 Property

1. In General

a. Basic Definition

b. Ineligible Property

c. Eligible Qualified Real Property

2. Acquired by Purchase

3. Partnerships and S Corporations

D. Recapture

1. In General

2. Computation of Recapture

a. In General

b. Impact on Subsequent Years

c. Impact on Adjusted Basis

3. Used Predominantly in a Trade or Business

E. Excluded Taxpayers

F. Election

1. In General

2. Revocation

G. Tax Planning Implications

1. Impact on Qualified Business Income Deduction —

2. Coordination with De Minimis Safe Harbor Election —

III. Additional First-Year Depreciation (Bonus Depreciation)

A. Qualified Property Additional First-Year Depreciation (Qualified Property Bonus Depreciation)

1. In General

2. Qualified Property

a. In General

b. Long Production Period Property

c. Specified Aircraft

d. Exceptions

(1) In General

(2) Election Out of Additional First-Year Depreciation (Bonus Depreciation) Allowance

e. Original Use Requirement or Used Property Acquisition Requirements

(1) In General

(2) Original Use Requirement

(3) Used Property Acquisition Requirements In General

(a) Prior Use Prohibition

(i) In General

(ii) Fractional Interests

(iii) De Minimis Use of Property

(iv) Substantially Renovated Property

(v) Series of Related Transactions

(4) Application of Used Property Acquisition Requirements to Partnerships

(5) Application of Used Property Acquisition Requirements to Consolidated Groups

(6) Application of Original Use and Used Property Acquisition Requirements to Syndications

f. Acquisition Date Requirement

(1) Acquisition Date Requirement — In General

(2) Acquisition Date of Property Acquired Pursuant to a Written Binding Contract

(3) Acquisition Date of Self-Constructed Property

(a) In General

(b) Components of Larger Self-Constructed Property (General Rule)

(c) Components of Larger Self-Constructed Property (Component Exception Election)

(4) Acquisition Date of Property Not Acquired Pursuant to a Written Binding Contract

(5) Acquisition Period Requirement for Long Production Period Property and Specified Aircraft

(a) In General

(b) Binding Contract

(c) Self-Constructed Long Production Period Property and Specified Aircraft

g. Placed in Service Date Requirement

3. Applicable Percentage (Bonus Depreciation Percentage)

4. Property Placed in Service and Disposed of in Same Tax Year

5. Redetermination of Basis

a. In General

b. Increase in Basis

c. Decrease in Basis

6. Like-Kind Exchanges and Involuntary Conversions

a. In General

b. Reverse Exchanges — Replacement Property Acquired and Placed in Service Before Disposition of Relinquished Property

7. Changes in Use

8. Coordination with Other Provisions

a. Section 280F(a) Limitations on Passenger Automobiles

b. Depreciation Recapture

c. Listed Property Depreciation Recapture

d. Alternative Minimum Tax

e. Certified Pollution Control Facilities

f. Earnings and Profits

g. Partnership Optional Basis Adjustments

h. Rehabilitation Credit

i. Debt

j. Long-Term Contracts

B. Specified Plant Additional First-Year Depreciation (Specified Plant Bonus Depreciation)

1. In General

2. Election and Revocation

3. Special Rules

C. Biofuel Plant Property Additional First-Year Depreciation (Biofuel Plant Property Bonus Depreciation)

1. In General

2. Qualified Second Generation Biofuel Plant Property

3. Qualified Cellulosic Biofuel Plant Property

4. Exceptions

5. Special Rules

D. Reuse and Recycling Property Additional First-Year Depreciation (Reuse and Recycling Property Bonus Depreciation)

1. In General

2. Qualified Reuse and Recycling Property

a. In General

b. Reuse and Recycling Property

c. Exceptions

d. Special Rule

TABLE OF WORKSHEETS

Sam Weiler
Sam Weiler
Principal, National Tax
Ernst & Young LLP
Scott MacKay
Scott MacKay
Vice President and General Counsel
Lockheed Martin Corporation
Tim Powell
Tim Powell
Tax Policy Advisor
US Department of Treasury
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