Depreciation Changes for 2003

There are two important tax breaks that relate to increased expensing of assets under Section 179 and bonus depreciation.   However, you should know that the Federal changes have not been adopted by a number or states, or have been otherwise modified.  NOTE:  If you read the instructions for the California income tax, you will note that California has NOT adopted the bonus depreciation or expensing changes found in the Jobs Creation and Worker Assistance Act of 2002 and Jobs and Growth Tax Relief Reconciliation Act of 2003.

Bonus depreciation

Under Code Section 168(k), taxpayers may claim a bonus first-year bonus depreciation deduction equal to 30% of the adjusted basis of qualified new property placed in service after Sept. 10, 2001 and before May 6, 2003. They may elect to claim a bonus first-year depreciation deduction equal to 50% of the adjusted basis of qualified new property placed in service after May 5, 2003 and generally before Jan. 1, 2005. The bonus first-year depreciation allowance applies for regular tax and alternative minimum tax purposes.

Expensing

For tax years beginning after 2002 and before 2006, the expensing election available under Section 179 has been changed in a number of ways, including the following:

(a) the amount of property that may be expensed each year is increased to $100,000 from $25,000 ($102,000 for tax years that begin in 2004),

(b) the maximum annual expensing amount begins to phase out dollar-for-dollar only where the business places in service during the tax year expensing-eligible property in excess of $400,000, up from $200,000 (the phase-out starts at $410,000 for tax years that begin in 2004), and

(c) off-the-shelf computer software is eligible to be expensed.