Fixed Asset Acquisition Planning for 2012

Construction Contractors that are planning to acquire fixed assets should consider doing so before the end of 2012.  After 2012, two significant tax benefits will diminish or be completely eliminated.

Section 179 depreciation

For tax years beginning in 2012 taxpayers may expense, in lieu of capitalizing and depreciating, up to $139,000 of qualified property, generally tangible personal property and off the shelf computer software.  The ability to expense eligible property phases out dollar for dollar when qualified acquisitions exceed $560,000.  These limitations are already a significant reduction from those allowed in 2011 when the maximum expensing limitation was $500,000 with the acquisition ceiling set at $2,000,000.   Absent any new legislation in this area, the limitations drop significantly again for tax years beginning in 2013, when the maximum expensing allowed will be only $25,000 with the phase out beginning at $125,000.  Furthermore, off the shelf computer software is eliminated as eligible property for tax years beginning in 2013.

Bonus depreciation

The bonus depreciation rules allow taxpayers to expense 50% of the cost of qualified property acquired and placed in service in 2012.  As was the case with Section 179, this benefit was significantly reduced in relation to the 2011 rules when taxpayers could expense 100% of eligible property.  Bonus depreciation benefits have been repealed for assets acquired after 2012.

Property eligible for bonus depreciation consists of tangible property with a 20 year or less class life, qualified leasehold improvements, i.e.:  interior improvements to nonresidential buildings, and off the shelf computer software.  Original use of the property must begin with the taxpayer.  Used property does not qualify. 

Absent tax legislation extending this provision once again, 2012 is the last year asset acquisitions will qualify for bonus depreciation.