Bonus Depreciation rate for 2010 is 50 percent. The Tax Act that runs through 2011 provides 100 percent depreciation for qualified assets acquired and placed in service after 9/8/10. The depreciation rate for qualified assets acquired before 9/9/10 and placed into service after 9/8/10 is 50 percent.

“The only elective option for post 9/8/10 acquisitions is the regular Modified Accelerated Cost Recovery System (MACRS),” McEowen said.

New property with a recovery period of 20 years or less is eligible for Bonus Depreciation.

Gunther illustrated differences between Section 179 and Bonus Depreciation:

  • For Section 179, new or used equipment applies; for Bonus Depreciation, only new equipment is allowed.
  • Section 179 is available to small to mid-sized companies; Bonus Depreciation is available to all companies.
  • Varying state conformity is the case for both 179 and Bonus Depreciation.
  • Section 179 can only offset income while Bonus Depreciation may create losses.

Gunther offered examples. A tractor costing $200,000 put in service on 11/15/2011 offers a potential 2011 tax deduction of $200,000 for both Section 179 and Bonus Depreciation. With a taxable income before purchase of $150,000, the taxable income or loss after purchase would be nothing for Section 179 and a $50,000 loss with Bonus Depreciation.

If that same tractor is put in service on 1/15/2012, under Section 179 (assuming taxable income before purchase is $200,000), potential tax deduction is $133,036 with a taxable income after purchase of $66,964. With Bonus Depreciation on the tractor put in service on 1/15/2012 (assuming taxable income before purchase is $200,000), potential tax deduction is $110,714 and taxable income after purchase is $89,286.

A significant difference exists in tax exposure between 2011 and 2012 and between Section 179 and Bonus Depreciation in 2012.

McEowen says farmers and their tax advisers should evaluate available depreciation opportunities to determine the best options. He recommends Section 179 for assets with the longest lives and on all equipment. “Use Bonus Depreciation on all qualified purchases and regular depreciation on remaining assets.”