Recently published Letter from Jeff Lovelady in Transport Topics

Updated: 11/28/2011 8:00:00 AM Letters: Taxes, Speed Limiting These Letters to the Editor appear in the Nov. 28 print edition of Transport Topics. Click here to subscribe today. Taxes Your Oct. 31 “Analysis” from The Associated Press, which was headlined “Small Business Tax Deduction to Shrink, Showing Importance of Year-End Planning” (p. 7), stated: “The maximum that can be deducted under the two deductions combined is $2 million.” If that refers to the section 179 deduction and the bonus depreciation deduction, the information is not accurate. There is no limit on bonus depreciation. The limit only applies to section 179, and the amount that can be deducted is $500,000 — and then it is limited dollar-for-dollar for every dollar the purchases for the year exceed $2 million. For example, if a company buys $2.2 million worth of trucks— assuming no trade-in — the company can take a $2.2 million bonus depreciation deduction, assuming the transaction meets all the requirements. If the company elects not to take bonus depreciation, then it can take a section 179 for $300,000 ($2.2 million minus $2 million limit equals $200,000, and $500,000 minus $200,000 equals $300,000) and then take the MACRS (modified accelerated cost-recovery system) three-year deprecation amount on the remaining $1.9 million. Also, keep in mind that if a company can enter into a binding contract, it can take 100% bonus depreciation on the equipment in 2012, as long as it either (1) has paid for the equipment if it is a cashbasis taxpayer or (2) has secured financing and recorded the liability if it is an accrual-basis taxpayer. So, if it is an accrual-basis taxpayer: Book the asset and the liability prior to Dec. 31, 2011, put the asset into service in 2012 and take 100% bonus depreciation on the asset in 2012. This is not available if it has followed the proper procedures in securing a contract to build or has paid for the equipment in 2011. This is only available to transportation assets and other qualified long-lived property. As always, consult your own advisers should you have questions. Jeff Lovelady CPA Bell & Company, Pa. North Little Rock, Ark.