Depreciation Opportunities Sunset Dec. 31
Are you are considering purchasing a biofuel plant or new equipment to expand or upgrade an existing facility? Don’t miss the opportunity to take advantage of depreciation deductions since these federal tax advantages sunset this year on Dec. 31.
Section 179 deductions enable small businesses to deduct 100 percent of the cost of an asset or portion of an asset in the year the asset is placed in service. To qualify for this deduction, the property must be tangible section 1245 property (not buildings) and can be new or used; income limitations may apply. Any excess section 179 is carried forward to future years. The section 179 expensing limits and thresholds are as follows:
• For years beginning in 2010 and 2011, the expensing limit is $500,000. This limit is reduced by the amount of which the cost of section 179 property placed in service in the tax year exceeds $2 million.
• For years beginning in 2012, the expensing limit is $125,000 and the threshold is $500,000.
• For tax years beginning after 2012, the expensing limit is $25,000 and the threshold is $200,000.
Bonus depreciation allows 50 percent of the cost of an asset to be deducted in the year placed in service. To qualify for this deduction, the property must be new and have a recovery period of 20 years or less. This would not apply to most buildings as they typically have a recovery period of 39 years. The expensing percentages and dates are as follows:
• The 2010 Tax Relief Act provided for 100 percent bonus depreciation on new assets placed into service from Sept. 9, 2010 to Dec. 31, 2011.
• 50 percent bonus depreciation will be available on new assets placed into service from Jan. 1, 2012 to Dec. 31, 2012.
Regarding the 100 percent bonus depreciation, there is an election available for the tax year that includes Sept. 9, 2010, which allows a taxpayer to elect to use 50 percent bonus depreciation for dates both before and after Sept. 8, 2010.
What does this mean to biorefining plant owners? According to Wayne Lee, CEO of Lee Enterprises Consulting, “It means that those in the industry that are looking at purchasing equipment for expansion, renovation, and those buying plants, should all be exploring the opportunities that exist in 2011 that might not exist in the future.”
Christianson & Associates PLLP is a strategic partner of Lee Enterprises Consulting, and handles accounting services for the group’s clientele. “As the world’s largest biodiesel consulting firm, it is important to us to have someone within our group that stays abreast of tax matters and upcoming changes,” Lee said. “These kinds of changes can have very significant impacts on our clients, and keeping us informed is precisely why we chose Christianson & Associates as a strategic partner,” he said. Lee notes that everyone in the industry should make certain to enlist the services of those accountants and attorneys that understand the tax code as it relates to biofuels.
Plant owners and purchasers should get competent advice to ensure that their purchases are structured correctly. For those purchasing biofuel-related equipment, there is an opportunity available this year that will not be available after Dec. 31.
Author: Sherry Jean Larson
Manager of Assurance and Advisory Services,
Christianson & Associates PLLP