Roger McEowen and I yesterday presented a seminar-webcast through the Iowa Bar Association on the new tax law extending the Bush-era tax cuts. I had never presented a webcast before, and it was a bit strange. We had an in-room audience of 6 or 7, and over 300 over the wire. I think it went all right, and we got some great questions that are worth repeating.
If a taxpayer enters into a contract to build a new machine shed prior ot September 8th, but it is not completed or placed into service until after September 8th, does the 50% Bonus or the 100% Bonus apply? Does it make any difference if there is a down payment made when the contact was signed?
This is sort of a trick question. Assuming the property is qualifying property — that is, with a life up to 20 years, rather than 39-year real estate — if construction is under way by 9/8, or it was under contract, it only qualifies for 50% bonus. That could possibly be the case with an agricultural structure, but probably not otherwise. A down payment should make no difference. Correction: as noted in the comments, the Joint Committee on Taxation says that property placed in service after 9/8/2010 qualifies for 100% bonus depreciation as long as there was no binding contract in place at 1/1/2008.
Can 50% bonus depreciation be elected after 9/8/10 in lieu of 100% bonus?
The law as written doesn’t provide a choice of 50% depreciation for assets qualifying for 100% depreciation.
Perhaps the most interesting question:
Does 100% bonus depreciation get recaptured if a piece of property is converted to personal use after the first year?
This question arose after I had explained that there appears to be nothing that keeps you from taking 100% bonus depreciation on the cost of a “large” sport-utility vehicle, one big enough (>6,000 lbs) to not be subject to the limits on deductions for passenger automobiles. The unstated thought: buy a big SUV, use it for business one year, deduct the whole thing, and take it home on January 1 next year.
Interestingly, the general rule of the tax law is that there is no recapture of bonus depreciation. Old temporary regulation Sec. 1.168(k)-1T(f)(6)(iv) covers that issue. The regular depreciation rules normally work the same way (old Reg. Sec. 1.168(i)-4(c)).
While the big sport-utes aren’t subject to the Sec. 280F depreciation limits for passenger cars, they are still “listed property” under Sec. 280F(d)(4):
(A) In general. Except as provided in subparagraph (B) , the term