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Tax Byte

Depreciation Changes in the American Taxpayer Act

Much of the focus of the last minute, “fiscal cliff avoidance” legislation, that was signed by the President earlier this week, was on the tax rates and provisions for 2013 and beyond.  There were, however, several provisions that directly and significantly impact 2012 taxes.

In our last Tax Byte, we noted the permanent “patch” to the alternative minimum tax (AMT), which will benefit millions of taxpayers in 2012.  There are also certain credits that technically expired December 31, 2011, which were extended in the new Act. (for example, the dependent care credit and the American Opportunity Tax Credit).  Perhaps the most impactful provision in the new Act for business owners is the extension of increased limits for Section 179 depreciation expensing and bonus depreciation.

Prior to the ATRA’s passage, the Section 179 election to fully write-off new equipment purchases was reduced to $125,000 for 2012 and was limited if a business acquired more than $500,000 in eligible property.  Both of these amounts were subject to inflation adjustment.  The ATRA retroactively increased the 2012 limit to $500,000 with a $2,000,000 investment limit.  This means that businesses will be able to write-off substantially more in equipment, furniture, fixtures, and other assets in the year placed in service.

Additionally, ATRA extended the ability of businesses to write-off 50% of all other qualifying asset purchases (i.e., “bonus depreciation") through 2014.  These two provisions provide businesses with significant opportunities that appeared unlikely several weeks ago.

Snyder & Company will continue to share new information as it becomes available.

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