What Is Bonus Depreciation 2016?
Bonus depreciation is a tax incentive that allows businesses to deduct a larger portion of the cost of qualifying assets in the year they are placed in service. It was initially introduced in 2001 as a temporary measure to stimulate the economy, and has since been extended multiple times, most recently in 2015.
Under the current rules, businesses can take advantage of bonus depreciation by deducting 50% of the cost of qualifying assets in the year they are placed in service. This is in addition to the regular depreciation deduction that businesses can claim over the useful life of the assets.
Qualifying assets for bonus depreciation include property with a recovery period of 20 years or less, such as machinery, equipment, furniture, and vehicles. It also includes qualified improvement property, which refers to improvements made to the interior of commercial buildings, such as renovations or expansions.
The purpose of bonus depreciation is to encourage businesses to invest in new equipment and assets, thereby stimulating economic growth. By allowing businesses to deduct a larger portion of the cost of these assets in the year they are purchased, it provides an immediate tax benefit and improves cash flow.
Q: Is bonus depreciation available for all businesses?
A: Yes, bonus depreciation is available for all businesses, regardless of their size or type. However, certain industries may benefit more from this incentive, particularly those that heavily rely on capital investments, such as manufacturing or construction.
Q: Can bonus depreciation be used for used assets?
A: No, bonus depreciation can only be claimed on new assets. Used assets are not eligible for this tax incentive.
Q: Is there a dollar limit on the amount of assets that can be deducted through bonus depreciation?
A: No, there is no dollar limit on the amount of assets that can be deducted through bonus depreciation. However, there is a phase-out threshold that begins once the total cost of qualifying assets exceeds $2.59 million. The deduction is then reduced dollar for dollar until it is completely phased out.
Q: Can bonus depreciation be used in combination with Section 179 expensing?
A: Yes, bonus depreciation can be used in conjunction with Section 179 expensing. Section 179 allows businesses to expense the cost of qualifying assets up to a certain dollar limit, and any remaining cost can then be deducted through bonus depreciation.
Q: Are there any limitations on the types of businesses that can claim bonus depreciation?
A: No, bonus depreciation is available to all businesses, regardless of their industry or type. However, certain industries may have specific rules or limitations that apply to them, so it is always advisable to consult with a tax professional for guidance.
In conclusion, bonus depreciation is a valuable tax incentive that allows businesses to deduct a larger portion of the cost of qualifying assets in the year they are placed in service. It provides immediate tax benefits and helps stimulate economic growth by encouraging businesses to invest in new equipment and assets. While there are certain limitations and rules associated with bonus depreciation, it remains a valuable tool for businesses looking to reduce their tax liability and improve their cash flow.