Small Business Jobs Act of 2010

Tax Depreciation Bonus

As part of an important economic stimulus package passed in September, the President signed into law an accelerated depreciation program that provides a special ‘first year’ depreciation benefit for capital equipment purchases.

Legislation Highlights

  • Companies can take a first-year depreciation deduction equal to 50% of the value of the investment.

  • The adjusted cost basis of the asset (50% of original value) can also be depreciated starting in 2010 using conventional depreciation rules. 

  • The special depreciation bonus is effective on all qualified property purchased between January 1 and December 31, 2010.

  • New equipment purchases which are capitalized- qualify for this program (This includes new Caterpillar® equipment, allied equipment, attachments, generators, etc.) Used equipment does not qualify.

  • Caterpillar Certified Rebuilds also qualify for this program.

This legislation will result in a significant reduction in the after-tax cost of capital.  Customers should consult with their tax advisors and seriously consider accelerating their purchases in 2010 to maximize their tax benefits.

 

Bonus Depreciation Allowance

Example of Tax Benefit

  • A new machine that costs $100,000 is purchased and put into use in 2010.

  • Under the 50% bonus rule, the first year depreciation would be $50,000 ($100,000*50%)=$50,000 Plus depreciation on the remaining basis:          ($100,000-$50,000)*20%=$10,000

  • The total depreciation tax deduction this customer would take is $60,000, versus only $20,000 without the bonus!

  • Therefore the total effective depreciation percentage under the bonus rules affords the taxpayer a deduction of 60% of the cost of new equipment purchased during 2010.

  

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