As we all know the economy has been struggling for the last few years. In an effort to stimulate business spending, liberal depreciation provisions have been enacted to allow companies to expense very large amounts of fixed asset purchases. At the end of the year, these extraordinarily high expensing limits expire.
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For the last two years, taxpayers have been able to elect under Section 179 to expense $500,000 of fixed asset purchases. For purchases beginning January 1, 2012, the dollar limitation will drop to $125,000 with a dollar for dollar phase-out for purchases in excess of $500,000.
Since September 8, 2010, taxpayers have been able to expense 100% of qualified fixed asset purchases under Section 168(k). For qualified property acquired and placed in service after December 31, 2011 and before January 1, 2013, a 50% allowance will apply.
15 Year Life for Specialized Realty Assets
Qualified leasehold, restaurant and retail improvement property that has been granted 15 year lives, will now have to revert to the previous depreciable life of 39 years. This applies to qualified leaseholds placed in service after December 31, 2011.
Research and Development Credit
The research and development credit is due to expire on December 31, 2011. I don’t have much faith that this provision will be allowed to expire since it has been continually extended since it was enacted 30 years ago. It usually gets extended and taxpayers are afforded retroactive treatment. The only reason I am cautiously optimistic to it being extended this year is because of the rhetoric regarding corporate tax reform. Due to the threatened reform, the credit may come under fire as a corporate loophole and be allowed to expire.
Currently, the research credit will only apply to amounts paid or accrued before January 1, 2012. We will have to take a wait and see approach as to whether or not the credit will actually be allowed to expire. My gut is that it will be extended but predicting what will happen in Washington is a task I am unwilling to undertake so I guess we will just have to bide our time and see what the powers to be have to say.