There are still a few months left to take advantage of the accelerated depreciation deductions available for 2011. While there will still be some opportunities for accelerated depreciation next year, those opportunities will not be nearly as generous as they are now. There are two different deduction provisions that will be changing in 2012.

Section 168(k) Bonus Depreciation:

The first change effective January 1, 2012 is the Section 168(k) bonus depreciation. Qualifying property acquired and placed in service after September 8, 2010 and before January 1, 2012 qualifies for 100% depreciation. Starting with next year the 100% bonus depreciation percentage will be dropping to 50%. This year presents a rare opportunity to write off the entire cost of fixed asset acquisitions for qualifying property without some of the limitations of the Section 179 deduction. It is important to note that the Section 168(k) deduction only applies to new property.

Section 179 Expensing:

The second change coming next year is in the Section 179 deduction. Currently you can use the Section 179 deduction to write off the entire cost of qualifying property up to $500,000 provided you don’t purchase more than $2,000,000 of eligible property during the year. To the extent you purchase more than $2,000,000 in the year, the deduction is phased out dollar for dollar until it completely phases out at $2,500,000. For 2012, the limitation will be reduced to $125,000 with a phase out that begins at $500,000. This expensing election has an important advantage over the 168(k) deduction in that it applies to both new and used property. However, it is important to note that the 179 deduction cannot create a loss, where the 168(k) deduction can.

There are many complexities and limitations to both the 168(k) and 179 deductions. Please contact me if you are contemplating taking advantage of either of these opportunities to discuss which option is best for you.

Circular 230 Notice: If this communication contains tax advice, this advice was not intended to be used, and cannot be relied upon by anyone, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.